Financial Definition of PARI PASSU
What It Is
Pari-passu is a latin term that means "at an equal rate or pace." The term is often used in venture capital.
How It Works
Let's assume Company XYZ is looking for $10 million of capital. It contacts three venture capital firms, all of which are interested. VC Fund A agrees to invest $5 million; VC Fund B invests $2 million; and VC Fund C invests $3 million.
To negotiate the deal (and to protect themselves), the venture capital funds give Company XYZ terms sheets to sign. The term sheets state the equity that VC Fund A gets in Company XYZ will be pari-passu to all other series of equity, meaning that it will have the same rights and privileges as the equity that Company XYZ will issue to VC Fund B or C.
Why It Matters
Pari-passu essentially means to treat all parties the same. Obviously, common shares and preferred shares are not equal; however, the shares within each class are usually pari-passu.
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