Most Favored Nation
MFN, or Most Favored Nation, is a provision allowing the largest investor to receive all benefits negotiated by other Limited Partners (LP) with the individual LP investors. This ensures equal treatment and privileges for the anchor investor.
What it Means:
In essence, the MFN clause acts as a safeguard, guaranteeing that the primary investor secures the most advantageous terms agreed upon by other LPs. It promotes fairness in investment structures and prevents preferential treatment among investors.
How to Calculate:
Calculating the impact of MFN involves assessing the terms and conditions negotiated by other LPs and ensuring the anchor investor receives the same benefits. It's a qualitative evaluation to maintain parity in the treatment of investors.
Why Measure:
Measuring the influence of MFN is crucial for Indian founders seeking investment. It ensures transparency and fairness in the distribution of benefits among investors, fostering a collaborative and trusting environment within the fund.
Examples:
Consider an Indian startup attracting a significant anchor investor. With the MFN clause, this investor gains access to terms secured by other LPs, creating a level playing field. For instance, if a specific LP negotiated favorable exit terms, the anchor investor would enjoy the same benefits.
For Indian founders venturing into fundraising, understanding the implications of MFN establishes equitable relationships with investors, fostering an atmosphere of equality and mutual benefit within the fund.