MFN Clause (MFN)

TL;DR

A 'Most Favored Nation' provision letting an early investor automatically adopt better terms offered to any later investor on the same instrument.

An MFN clause in a SAFE or convertible note gives the early investor the right to elect terms granted to any subsequent investor on a similar instrument. If a later SAFE has a lower cap, a higher discount, or other better economics, the MFN holder can swap their terms in.

MFN clauses protect early investors from being undercut by later, friendlier deals, but they also make the cap table unpredictable. Founders who issue too many MFN-bearing SAFEs lose the ability to negotiate flexibly with later check-writers.

Worked example

A founder issues 6 SAFEs over 9 months, the first 3 at $8M cap, the next 3 at $10M cap. SAFEs 1 to 3 with MFN clauses get to elect into the $10M cap if it's better; in this case it isn't (the $8M cap is cheaper to the holder), so they keep their original terms.

Common pitfalls

• Issuing MFN clauses without tracking who holds them.
• Underestimating how MFN propagation cascades through subsequent rounds.
• Not consulting counsel before agreeing to a non-standard MFN.

When this shows up in a pitch deck

MFN matters in term-sheet negotiation, not deck content.

See MFN Clause in context

MFN Clause shows up most often in these scoring rubrics and investor profiles, jump straight to who cares about it and how to pitch them.

For investor types

• Strategic Investor, Partnership Capital

Related terms

• SAFE, Y Combinator's Simple Agreement for Future Equity, a contract that gives an investor the right to equity in a future priced round, with no debt or interest.
• Convertible Note, Short-term debt that converts into equity at a future priced round, typically with a discount, a valuation cap, and an interest rate.
• Valuation Cap, The maximum company valuation at which a SAFE or convertible note will convert into equity, protecting early investors from dilution at high prices.
• Discount Rate (Convertible), The percentage discount a convertible note or SAFE holder receives off the next priced round's price per share.
• Term Sheet, A non-binding document outlining the principal terms of a proposed financing, used to align investor and founder before legal documents are drafted.

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