This right allows the investor to ask for the redemption of her stock within a specific time window. This is one of the rights with a potentially high downside impact as it might create a liquidity issue for the startup. The investor will pay a fair price (market value or the original purchase price + interest rate).

Why do they exist? Well, in some cases, the company might not want to go public or cant go public. In this case, the rights provide an exit path to the investor. Also, usually, an investor would want to get the return in 5-10 years.

What should the founder do? First, the founders should push back to knock out the rights in the first place. If the investors insist, the founders should try to push for a long time window (5-10 years).

Lastly, the founder should watch out for “adverse change redemption”. This gives the investor the right to redeem her shares if the company experiences a “material adverse change to its . . . business”. There is no proper definition of material adverse change and thus the investor might use an arbitrary judgment.