This is a ridiculous situation. Why would you possibly plow more money into a company that is actively adversarial against you?
If a company tries to screw you like this, you have shareholder rights. If you are a big enough fish that you are getting into crazy financing battles like this, then you are not the target audience for this post.
That's not necessarily the case here. When the investor in this example makes the initial investment, they are factoring in the possibility of failure and weighing that the compensation for this is the ability to participate in upside in the case of success. If they don't get a right of first refusal to participate in subsequent funding their upside is capped because a big investor will come in and want to take down the entire round (I have been involved in several funding situations and big investors very often want to do this in my experience). They will be left with a tiny stake and don't get to share in subsequent growth.
The whole VC ecosystem would change if investors knew on their losing bets they would take the full loss and on the winners their upside would be hard capped because they wouldn't be able to follow on. It would be much harder for companies to get funding in that world.
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This is a ridiculous situation. Why would you possibly plow more money into a company that is actively adversarial against you?
If a company tries to screw you like this, you have shareholder rights. If you are a big enough fish that you are getting into crazy financing battles like this, then you are not the target audience for this post.
That's not necessarily the case here. When the investor in this example makes the initial investment, they are factoring in the possibility of failure and weighing that the compensation for this is the ability to participate in upside in the case of success. If they don't get a right of first refusal to participate in subsequent funding their upside is capped because a big investor will come in and want to take down the entire round (I have been involved in several funding situations and big investors very often want to do this in my experience). They will be left with a tiny stake and don't get to share in subsequent growth.
The whole VC ecosystem would change if investors knew on their losing bets they would take the full loss and on the winners their upside would be hard capped because they wouldn't be able to follow on. It would be much harder for companies to get funding in that world.