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Most Favored Nation (MFN)
A clause giving early investors the right to adopt better terms offered to later investors.
Formula
MFN example:
- SAFE 1: $200K, $10M cap, MFN
- SAFE 2: $300K, $8M cap
With MFN, SAFE 1 can adopt $8M cap.
Both now convert at $8M cap terms.
Definition
What is MFN?
Most Favored Nation provisions let early SAFE or note holders adopt terms from subsequent convertible raises if those terms are better. If you give later investors a lower cap, earlier investors can take that cap too.
MFN Mechanics
MFN typically applies only to pre-priced round convertibles. Once a priced round happens, MFN no longer applies. It protects early believers from being disadvantaged by later, more favorable raises.
Strategic Implications
MFN means your earliest terms effectively become your floor. Offering better terms later lifts all boats. Be thoughtful about SAFE terms since MFN can amplify the impact of any concessions.
Example
Timeline:
- March: Raise $150K SAFE at $6M cap with MFN
- June: Raise $250K SAFE at $5M cap (better terms)
- September: Series A at $12M post
March investor exercises MFN, adopts $5M cap.
Both SAFEs convert at $5M cap.
March investor gets same effective price despite investing earlier.
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