DealLawyers.com Blog

The venture capital industry is going through some evolutionary changes, as noted in today’s TheCorporateCounsel.net Blog entitled “VC = Venture Cataclysm?” Keep up with how much VC is evolving by tuning into this webcast on TheCorporateCounsel.net tomorrow – “Venture Capital: Facing a Changing World” – featuring Jonathan Axelrad of Goodwin Procter, Steve Bochner of Wilson Sonsini and Gordy Davidson of Fenwick & West.

Recently, Rezwan Pavri of Wilson Sonsini helped me answer the following question in our “Q&A Forum”:

Question: In a venture capital/private equity financing, what is a “pull up” provision? Fenwick’s most recent survey refers to “pull up” provisions as opposed to pay-to-play provisions.

Answer: A “pull-up” is a variation on the basic pay-to-play structure that provides incentives to existing investors to continue funding a company by allowing investors to pull forward existing shares of the company’s capital stock into a new series of preferred stock with superior rights to existing preferred stock. This structure often encourages investors in junior series of preferred stock to invest in the current financing round because it provides them with an opportunity to move at least some of their junior preferred stock into a senior series of preferred stock (and thereby get out from under a stack of preferred stock with senior liquidation preferences).

“Pull-up” features can often be combined with other provisions found in a traditional pay-to-play structure in order to achieve a recapitalization of a company. “Pull-ups” are often accomplished through contractual exchange rights that are baked into the stock purchase agreement for the current financing round.