Fundraising & Equity
Redemption Rights — The Hidden Clause
Collated by Harry Prabandham
Curated by Rubric Financial
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What Redemption Rights Are
- Redemption rights give investors the ability to force the company to repurchase their shares at the original investment price (or a multiple) after a set period, typically 5-7 years
- In theory, this provides investors with an exit if the company hasn't gone public or been acquired within a reasonable timeframe
- In practice, most startups don't have the cash to honor a redemption — but the legal obligation creates leverage for the investor
- Redemption rights are more common in later-stage deals and with corporate or international investors who need defined exit timelines
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