Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
Indiana’s private capital market is evolving quickly. Founders are raising funds more frequently, and investors, especially those at the earliest stages, are asking for more. Not just better terms or lower valuations. They’re asking for exit options, built in from day one.
For years, early-stage deals operated on an understanding: capital in, patience on the back end. But now, transfer rights, redemption windows, and secondary carveouts are appearing in documents that used to focus solely on price and control. They’re surfacing in simple agreements for future equity, convertible notes, and even seed-stage equity rounds. Often negotiated quietly. Sometimes not fully understood.
Redemption rights, transfer triggers, and other liquidity provisions often sit quietly in early-stage deal documents. They’re not always flagged in summaries, and they rarely dominate negotiation. These terms can feel theoretical at signing. But when they activate, sometimes years later, they can force a company to return cash it doesn’t have, restructure its ownership, or accelerate an exit.
Imagine a founder gearing up for a Series A when a redemption window quietly activates: investor capital must be returned, cash flow projections unravel, and the company scrambles to reframe its growth trajectory – all because a clause embedded years earlier came due. That kind of pressure can be destabilizing for any startup, and it’s not uncommon.
For transactional attorneys, this isn’t just a matter of legal compliance. It’s a question of structural awareness. These liquidity provisions aren’t standard fare; they’re bespoke and behavior-driven terms that reflect investor strategy more than legal convention.
A transfer right can introduce unknown third parties into governance conversations. A carveout for secondary sales might undercut future fundraising, especially if cap table dynamics change mid-stream. And redemption language, if left unchecked, can create financial pressure no founder budgeted for.
The legal exposure is real. Overlooking these terms in early diligence can invite governance disruption, investor misalignment, and unanticipated financing consequences.
For counsel, that means asking not just what’s in the term sheet, but what’s embedded in side letters, shareholder agreements, and optionality language across instruments.
These terms are appearing not just in venture-backed startups, but also in companies operating outside traditional venture capital, small syndicate-led rounds, and family office-backed deals. Similar liquidity provisions are surfacing nationally, signaling a broader shift in investor priorities and deal architecture. It’s a quiet trend, but one with loud consequences.
It’s also landing against a backdrop of statewide momentum. Several pro-entrepreneurship laws passed by the Indiana General Assembly in spring 2025 took effect on July 1, marking a coordinated effort to modernize the state’s business infrastructure.
Senate Enrolled Act 516 established the Office of Entrepreneurship and Innovation with a mandate to centralize small business support and coordinate entrepreneurial programs across state agencies.
House Enrolled Act 1601 expanded sales tax exemptions for quantum research, and House Enrolled Act 1322 authorized state exploration of blockchain applications, further signaling Indiana’s appetite for high-growth sectors. In this evolving policy environment, investors are taking note.
They’re revisiting deal structures, reassessing exit timelines, and modeling redemption mechanics with greater scrutiny. That shift isn’t combative; it’s recalibrated.
Here’s the pivot: these liquidity demands don’t need to be adversarial. In many cases, they’re a rational response to long hold periods and opaque exits. The role of counsel is to structure terms that reconcile investor priorities with founder protections, preserving flexibility and transactional integrity.
That means asking early, before the first markup, what the investor wants long term. It means reviewing side letters closely, because they matter. It means educating clients not only about the language, but the scenarios that follow. A good liquidity clause isn’t just legally sound—it’s economically coherent and governance-aware.
Cap table modeling matters here. Counsel should help clients project how transfer rights and redemption windows might alter ownership percentages, control thresholds, and investor composition over time. Proactive scenario modeling is fundamental to mitigating future transactional risk.
Founders aren’t trying to out negotiate their investors; they’re trying to build cap tables that support long-term growth and reduce surprises. The best way to do that isn’t to push back on every liquidity request but to manage them with clarity and conviction, creating a sense of mutual structural consequence.
If Indiana’s deal ecosystem is maturing, as I believe it is, then our approach to early-stage negotiation must mature with it. Liquidity isn’t a problem, rather it’s a signal: the deal is real, the stakes are high, and the transaction demands intentional structuring. That’s why it needs interpretation; not just of terms, but of timing, intention, and transactional impact.
As transactional counsel, our job isn’t to quiet these terms. It’s to give them context. Because in deals where exit pressure speaks loudest, the lawyers who listen early and translate well are the ones building structures that actually hold.•
__________
Brock Easton is a partner at Castor Easton LLP in Indianapolis, where he advises founders, funds, and private companies on securities transactions, exempt offerings, and strategic business structuring.
Please enable JavaScript to view this content.