Tag-along rights (also called co-sale rights) protect minority shareholders when a large holder sells stock. If a founder sells shares to a buyer, investors with tag-along rights can "tag along" and sell a proportional portion of their own shares to that buyer at the same price and terms.
How they work
1. A founder negotiates to sell, say, 1,000,000 shares to a third party
2. Investors with co-sale rights are notified and may elect to participate pro rata
3. If investors holding 20% of participating shares exercise, the buyer purchases 800,000 founder shares and 200,000 investor shares — the founder sells less than planned
Why investors want them
A founder's stake and involvement are core to the investment thesis. Tag-along rights prevent the scenario where a founder quietly sells out at a premium while investors remain locked into a company that just lost its leader. They also guarantee minority holders access to any liquidity a control holder negotiates.
Tag-along vs drag-along
The two are mirror images: tag-along lets minority holders *join* a sale they weren't part of; drag-along lets majority holders *force* minority holders into an approved sale. Standard venture financings include both, and they operate alongside the company's own right of first refusal — typically the company gets first claim on founder shares, then investors get co-sale rights on whatever proceeds.
Practical notes for founders
Co-sale rights rarely bite day-to-day; they matter in secondary sales. If you plan to take money off the table in a future round, expect the process to run through ROFR and co-sale waivers — build time for it and get board and investor alignment early.