Fundraising
Drag-along right
A contractual right that allows majority shareholders to force minority shareholders to participate in the sale of the company on the same terms.
In plain English
If 70% of shareholders vote to sell, the other 30% are 'dragged along' — they must sell too, on the same terms. Prevents a small holder from blocking an acquisition.
Example
An acquirer offers $50M for the company. Founders + Series A investors (together 75% of shares) vote yes. A 10% Series B investor wants to wait for a better offer. The drag-along clause forces the Series B investor to sell at $50M too.
Why it matters
Drag-along rights make acquisitions actually executable. Without them, any 10% shareholder could block an exit by refusing to sell. The threshold (how much of the cap table needs to vote yes) is the negotiated piece — usually 50-67% of preferred + board approval.
Common mistakes
- Accepting a high threshold (e.g., 80%+) that effectively gives a single investor a veto on acquisition
- Forgetting that drag-along requires common + preferred shareholder approval mechanisms to align — incompatible structures cause practical blocking
- Not paying attention to drag-along vs tag-along — they're distinct rights with opposite purposes
- Founders blocked by class-level voting they didn't realise they'd granted