Asking for a friend…
An angel investor in a successful startup wants to cash out a bit in a secondary but the founders are telling him he can only cash out fully or stay in full. No partial sale allowed. But his shareholder docs show he has tag along rights to the tune of 20%. Would it rub off a founder the wrong way if the angel were to invoke that right? Presumably because the founder may then have to offer a partial sale to all exiting shareholders, some of whom may not have been aware of their tag along rights.
Good question. The new investor (ie buyer) has a minimum ticket size they want to put in considering they are institutional. The founders also have a cap of 10% of their shares that they can sell. If most angels choose to sell partial rather than full, the total amount of shares available for sale may not end up meeting the new buyer’s minimum ticket size, and that may scuttle the deal for everybody if the buyers decides to walk away. But if most angels sell ALL their stake, then that threshold is met. Make sense?
Yes, but the contract language allowing partial sales doesn’t. Half of the point of tag-along language is to enable a buyer to clear the cap table of LPs.