[Startup Investment] Pay-to-play : No

You see a 'play to play' provision in an investment offer from an investor. What is it and is it market?

Pay to play : no

What is 'play to play'?

As the name suggests, “pay-to-play” provisions require existing investors to pay (i.e., invest) in order to continue to play (i.e., maintain investor rights). Specifically, pay-to-play provisions usually require existing holders of preferred stock to purchase, on a pro rata basis, additional shares of the Company in a future financing.  <Morrison Foerster>

What's being said in the wild

Aumni (by JP Morgan) mentions that only 2.43% of Equity Financings they tracked in 2023 had 'Pay to Play'.

After rising to 7% of reported deals in Q3 2023, the percentage of deals with a pay-to-play provision decreased to 4.6% of deals in Q4 2023. - Cooley

Pay-to-play provisions are extremely rare in technology investment deals. But they are absolutely common in biotechnology or life sciences deals because those types of companies require such a large amount of capital to get a product to market. - hollowway.com

In February of 2023, Sequoia made headlines when they walked away from their investment in crime tracking app, Citizen, after being offered a “pay-to-play” deal by the company. These provisions, while common after the dot-com bubble burst in the early 2000s, had fallen out of favor in recent years, given the strong economic outlook for startups. - AngelList

The practice of pay-to-play was quite common in the 2000s, after the dot-com bubble burst. - CB Insights

Of those companies with which Cooley works, pay-to-play provisions appeared in 11.9 percent in Series D or later deals last year, down from 13.8 percent of deals in 2013. <a bit outdated but interesting data points. - techcrunch>

Is having a 'pay-to-play' right for your funding round? Talk to an expert, but know that its not common.