What is priority right?
In legal terms, this is called a “priority right”. What this means, is that certain people have a priority right to buy something before anyone else, at a given price.
If no one uses their priority right, anyone else can match the offer to buy the investment.
The underlying reasons of priority rights are:
- To allow existing investors to keep their investment in the start-up company closed and thus limit the number of investors within the syndicate, and/or
- To allow existing investors the possibility to increase their share in the syndicate
For instance, if an existing investor decides to sell their investment, the other investors in the syndicate have the right to step in and buy the investment at the agreed price.
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