Cap table & equity

Side letter

Supplementary agreement granting specific rights to one investor outside the main financing documents.

Definition
A side letter is a supplementary agreement between the company and a specific investor that grants rights or accommodations not included in the main financing documents. Common in venture rounds where one investor needs terms different from the standard (e.g., special information rights, tax structuring accommodations, or MFN clauses).
Same concept, different names
UniversalContractual; supplements the main investment agreement

Why side letters exist

The main financing documents (stock purchase agreement, investor rights agreement) apply equally to all investors in a round. But specific investors sometimes need or negotiate special terms — tax-exempt entities need certain ERISA accommodations, family offices need confidentiality, lead investors get board observation rights — and these go into a side letter rather than being grandfathered into the main docs.

MFN (Most Favored Nation) clauses

Common in SAFEs and convertible notes. An MFN clause says: 'If the company gives any later investor better terms than mine, I get those terms too.' At conversion, the SAFE/note holder gets the most favorable terms available across all the company's outstanding instruments of the same series.

In Octelligence
Side letters tracked alongside main agreements.

Octelligence attaches side letters to the investor's profile in the cap table, with the specific rights granted flagged for reference at future rounds.

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Related terms

SAFE (post-money)
Common instrument with side letters
Term sheet
Where side letter terms get negotiated
Pro-rata rights
Often granted via side letter
Back to glossary
Cap table, registers, certificates
Track every investor right at the share level.

Pro-rata, ROFR, drag-along, MFN, registration rights. Recorded against the share, surfaced when relevant.

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