Fundraising
Most-favored-nation clauses in SAFEs and notes
Understand what an MFN clause promises an early convertible holder, how an election works, and how the elected terms change a conversion price.
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A promise about later paper
A most-favored-nation clause lets the holder of an early convertible instrument take the terms of a later one issued on better terms. It is common on uncapped or lightly negotiated SAFEs and on bridge notes, where the investor accepts terms first and reserves the right to match what comes next.
An MFN clause is an option, not an automatic rewrite. Until the holder elects, the instrument keeps the terms it was signed with. Which later instruments qualify, how long the window stays open, and which terms may be taken are all written into the clause.
Read the clause before recording it
Three parts of the clause decide what an election can do: its eligibility window, the kinds of later instruments it may look at, and the terms it covers. Cap Table supports explicit elections of the valuation cap, the discount, and the SAFE money convention, and refuses terms outside that set rather than importing a clause it cannot calculate.
A source instrument must be later than the original, inside the eligibility window, and one of the recorded eligible kinds. A note cannot elect a SAFE money convention, because that convention does not exist on a note.
Work through an election
Assume a company with 1,000,000 pre-round fully diluted shares. An investor holds a $100,000 pre-money SAFE with an $8,000,000 valuation cap and an MFN clause covering the cap. The company later issues a SAFE with a $5,000,000 cap, and the holder elects those terms.
| Terms applied | Cap | Cap price per share |
|---|---|---|
| Original SAFE as signed | $8,000,000 | $8.00 |
| After electing the later cap | $5,000,000 | $5.00 |
The cap price is the cap divided by the applicable capitalization: $8,000,000 ÷ 1,000,000 = $8.00, against $5,000,000 ÷ 1,000,000 = $5.00. The conversion price is the lowest of the cap price, the discount price, and the round price, so a lower cap can only help the holder. The same $100,000 buys 12,500 shares at $8.00 and 20,000 shares at $5.00.
Record the clause, then the election
An election is a dated event with its own evidence, not an edit to the original instrument. Recording one copies the source instrument’s terms as they stand on that date and keeps the original terms beside them. Editing the source instrument afterwards cannot change an election already recorded, and the original cap and discount remain on the record for history.
A round scenario then chooses whether to apply the election: it names the election IDs it uses and its financing ID, and only eligible dated elections apply. An election that is outside its dates, or that does not name the financing, is reported as not applicable rather than applied quietly. A scenario may select only one election per instrument, duplicate election IDs on one instrument are refused, and an ID that would identify elections on two instruments is refused as ambiguous.
Elections are never imported from a CSV. Record the clause first, then elect from the security sheet, so the elected terms always come from an instrument on file. See Record SAFEs and convertible notes.
Keep the unmodeled terms with the agreement
An MFN clause can promise more than a cap, a discount, and a money convention: pro rata rights, information rights, board observer seats, or a full exchange of the instrument for later paper. Those are contractual outcomes the app does not model, and electing them is a legal step, not a recordkeeping one.
Record what the app supports, keep the signed clause and the election notice attached to the instrument, and reconcile anything else against the agreement before relying on a modeled conversion.