Pay-to-Play

Authors

• Gad Weiss

Abstract

Pay-to-play clauses are a surprisingly understudied feature of venture capital financing deals. These provisions are designed to act as enforcement agents, securing investors’ long-term commitment by penalizing those who decline to provide additional funding when their portfolio startups come calling. Through an analysis of a novel dataset of pay-to-play clauses, this paper uncovers surprising patterns in how U.S. startups design and deploy them—most notably, their tendency to discriminate among investors despite legal guidance suggesting otherwise. The paper illustrates how pay-to-play clauses can increase enterprise value by addressing flaws in startups’ governance and capital structures, preventing destructive “chicken” games among investor syndicates and fine-tuning investors’ use of staged financing to minimize agency costs. The paper also offers a discussion of Delaware’s treatment of these clauses, observing how lingering enforceability concerns might hamstring efficient clause design and nudge drafters to use low-visibility contractual alternatives rather than transparent, charter-based pay-to-play arrangements.

Rights

2026 Brigham Young University Law Review

Recommended Citation

Gad Weiss, Pay-to-Play, 51 BYU L. Rev. 1673 (2026).
Available at: https://digitalcommons.law.byu.edu/lawreview/vol51/iss6/8