Most Favored Nation (MFN) clause

The Most Favored Nation (MFN) clause is a common provision in convertible notes and SAFE (Simple Agreement for Future Equity) agreements that guarantees an investor who signed early the retroactive benefit of more favourable terms later granted to subsequent investors in the same instrument, during the same financing round.

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Concretely, if an investor signs a SAFE with a given valuation cap, and a later investor then negotiates a lower, more favourable cap, the MFN clause lets the first investor demand that this more advantageous cap be automatically applied to them, with no individual renegotiation needed.

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This clause acts as insurance for the very first signatories of a round, who often agree to commit before final terms have settled: it protects them against the risk of having signed too early, on terms ultimately less favourable than those obtained by more patient investors, a trade-off common in a Follow-on investment staged over time.

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For a startup raising in several waves through successive convertible instruments, the presence of MFN clauses among early signatories calls for particular care: any later concession granted to a new investor can automatically cascade back to all earlier holders, a domino effect to anticipate in the round's financial structuring.