Demand Registration

Demand registration is the right that lets preferred stockholders compel the company to file an SEC registration statement enabling public sale of their shares. It is typically exercisable after a 180-360 day post-IPO waiting period, limited to 1-3 demands per investor group, subject to $5M-$10M minimum offering size, and accompanied by company expense coverage. It is the most significant registration right structurally because it gives investors the affirmative ability to force a registration on their own initiative, rather than waiting for the company to act.

The mechanic of a demand registration:

• Trigger: investor (or group of investors holding above a defined threshold) sends a written demand to the company.
• Validity checks: the demand must satisfy threshold requirements (minimum-size offering, post-IPO waiting period elapsed, demand-count limits not exceeded, no recent registration just completed).
• Company action: upon a valid demand, the company is contractually obligated to file a registration statement (typically Form S-1 for the first post-IPO registration or Form S-3 if eligible) and pursue effectiveness with the SEC.
• Other holder participation: piggyback holders typically can include their shares in the demand registration, subject to cutbacks if oversubscribed.
• Execution: the company files, responds to SEC comments, conducts a roadshow if necessary, prices the offering, and closes. The investors selling get their proceeds; the company typically bears the expenses.

Typical demand registration terms in NVCA standard documents:

• Number of demands: typically 1-3 total demands available to the preferred holder group (often "two demand registrations" is standard).
• Minimum offering size: typically $5M-$10M aggregate offering price required to trigger a demand.
• Waiting period from IPO: typically 180 days post-IPO before the first demand is exercisable.
• Cooling-off period between demands: typically 6-12 months between successive demands to prevent burden on the company.
• Holder threshold: typically demands require holders representing a defined percentage of registrable securities (often 30-50% of outstanding registrable preferred) to act together.
• Cutback ordering: if the offering is oversubscribed, allocations are cut back in defined order (company first, demanding stockholders pro-rata, piggyback holders last).

Why demand registrations matter strategically: the threat of a demand registration gives investors negotiating leverage with the company even when they don't exercise. A company that wants to manage its capital-markets activity (timing, size, market conditions) has incentive to maintain good relationships with major preferred holders to avoid forced registrations. The actual exercise of demands is relatively rare; most investor sales happen via piggyback on company-initiated offerings or via Rule 144 once the holder qualifies.

What founders get wrong: Not negotiating the demand registration terms specifically because they feel distant from the IPO reality. The terms agreed at Series A and Series B set the demand rights that apply at IPO; non-standard terms agreed early are very hard to renegotiate later. The right discipline: at every priced round, treat demand registration terms as a real negotiation point, conform to NVCA standard, resist non-standard expansions, and ensure the standard waterfall (cutback ordering, expense coverage, termination) is in place.

Related: Registration Rights · Piggyback Registration · S-3 Registration · IPO · Preferred Stock

FAQ

What is a demand registration?
A registration right that allows preferred stockholders (or other designated holders) to compel the company to file a registration statement with the SEC to enable the public sale of their shares. Typically exercisable after a defined post-IPO waiting period, limited in number, and subject to minimum-size requirements.

How many demand registrations are typically allowed?
The NVCA standard is typically 1-3 demands across the preferred holder group (often "two demand registrations" is the negotiated norm). The cap exists to prevent excessive operational burden on the company while providing meaningful investor liquidity rights.

When can investors exercise demand registrations?
Typically after a defined post-IPO waiting period (often 180 days), subject to the minimum-size requirement (often $5M-$10M aggregate offering price), and with cooling-off periods between successive demands (often 6-12 months). The terms are designed to balance investor liquidity rights with the company's capital-markets management needs.