Most Favored Nation (MFN)
A clause guaranteeing an investor will receive terms at least as favorable as any subsequent investor in the same or similar round.
A Most Favored Nation (MFN) clause ensures that if a company offers better terms to a later investor, the MFN holder automatically receives those improved terms. This provision is most commonly found in SAFEs and convertible notes, where a company may raise from multiple investors over several months and terms may evolve.
The MFN clause addresses a fairness concern: early investors in a rolling raise take on more risk (investing when the company is younger and less proven) and should not be penalized with worse terms than later investors who had more information. If an early SAFE has no cap and the company later issues a SAFE with a $10M cap, the MFN clause lets the earlier investor adopt the $10M cap.
Founders should be aware that MFN clauses can create complexity in cap table management. Every time you issue a new SAFE with different terms, you need to notify MFN holders and let them elect to update their terms. Most MFN provisions only apply to the same class of instrument (SAFEs to SAFEs, not SAFEs to priced rounds) and have a time limit.
Example
A startup issues a SAFE with no valuation cap to an early angel in January. In April, it issues another SAFE with an $8M cap to a later investor. The MFN clause in the January SAFE allows the angel to adopt the $8M cap, giving them better conversion terms at the next priced round.
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