What is pari passu and how does it affect investor rights?
Short Answer
Pari passu means investors hold equal ranking in liquidation or dividend priorities — no investor class has preference over another, protecting minority investors from founder dilution.
Full Explanation
In venture rounds, pari passu provisions ensure that Series A, Series B, and later investors have equal claim on assets in a liquidation scenario. Without pari passu, founders could later issue debt or preferred shares that outrank earlier equity investors in bankruptcy. For example, if Series A receives 1M shares and Series B receives 1M shares (both at £1), pari passu means both classes share the exit proceeds equally pro-rata by share count. Non-pari-passu structures are rare in institutional rounds but appear in some founder-friendly seed deals. Protective provisions often require pari passu treatment — if founders later try to create a superior class, existing investors can block it. Pari passu doesn't prevent liquidation preferences (which determine order of payout in exits); it ensures equal treatment within a given investor class. For founders, pari passu is standard market; rejecting it signals founders want special rights that might concern co-investors.
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