Pay-to-play is a provision included in some financing agreements that requires existing investors to participate in a subsequent funding round to avoid the loss of certain rights, including anti-dilution protection, liquidation preferences, or conversion of preferred stock into common stock.

Under a pay-to-play provision, existing investors are required to invest a pro-rata share in a new financing round to maintain their existing rights. The intention is to protect the company by ensuring ongoing financial support from its existing investors, especially during down rounds. For investors, participating in subsequent rounds under a pay-to-play clause means maintaining their current rights and influence in the company.

Overall, pay-to-play is a mechanism to align the interests of the company and its existing investors, ensuring that all parties remain actively invested in the company’s growth and success.