Drag Along Is Against Trouble Makers Only
|Feb 17, 2016|
I don’t agree with investors willing to have the power together over a founding team to activate a drag-along clause. In my opinion, above a certain IRR or multiple, the founding team shall even have the full control over their investors to activate this clause. You can’t force someone to run a company, even if you invested a fair amount of money and had higher expectations. If you don’t run the company, you don’t play god to force the founders’ hands.
The drag-along allows majority stockholders who wish to initiate a change of control of the company (subject to any right of first refusal or right of first offer, as applicable) to force the minority stockholders to participate in the transaction. This clause is against trouble makers only.
LPs want their money back at some point and that’s why there is a liquidity clause in every shareholder agreement, but no one should ever be able to control the drag-along clause without the founders’ approval.