Most Favored Nation (MFN) is a parity clause: if the issuer grants more favorable terms to a later participant in the same class of transaction, an earlier holder with MFN can elect to receive those better terms instead of their original ones.

How it works

In startup financings, MFN commonly appears on SAFEs and convertible notes. Investor A invests at a $12M valuation cap with MFN. Months later, Investor B gets a $9M cap on a similar instrument. A can convert as if they had the $9M cap—increasing fully diluted dilution versus A’s signed document. See MFN on SAFE for conversion mechanics.

MFN scope is negotiated:

• What triggers it: Lower cap, higher discount, better interest rate—usually economic terms, not board seats or information rights unless specified.
• Who is compared: Often “subsequent investors in the same financing instrument,” not every future priced round.
• Notice and election: Holder must affirmatively elect within a window after learning of the better terms.

In fund economics, LPs sometimes negotiate MFN on management fee or carry in side letters: if the GP gives a later anchor a fee break, MFN LPs receive the same break prospectively.

Why it matters

• Founders: Stack SAFEs with a cap-table model that assumes MFN elections on worst-case downstream terms. One strategic bridge can upgrade many prior holders.
• Investors: MFN reduces renegotiation friction and protects against being diluted by friendlier later deals.
• LPs / GPs: Fee MFN prevents a two-tier LP base and simplifies fundraising fairness, but narrows GP flexibility on anchor negotiations.

Common mistake

Treating MFN as unlimited—assuming it applies across priced rounds, advisory shares, or employee options. Read the definition of “more favorable terms” and the instrument class it covers.

Related ideas

See also MFN on SAFE, side letter, SAFE, and management fee.