Co-sale rights, also known as “tag-along” provisions or “take-me-along” rights, are contractual provisions in VC deals that ensure that certain stockholders, typically investors, have the opportunity to participate in a sale of shares initiated by another stockholder, often a founder, employee, or fellow investor, on the same terms and conditions. Co-sale rights are usually coupled with rights of first refusal (ROFR) and come into effect when the ROFR is waived or not exercised by the existing stockholders.

Mechanically, co-sale rights grant major stockholders, often VC investors, the ability to join the selling stockholder in selling their shares to the interested third-party buyer. The seller has a contractual obligation to alert all right of co-sale holders of the proposed sale, and the holders can then determine if they want to participate. The participation is usually on a “pro rata” basis, meaning each investor can sell a percentage of their shares that corresponds to their ownership in the company. The purpose of this mechanism is to protect the major stockholders' investment value and prevent dilution resulting from a significant transaction involving the company's shares.

Here’s a scenario where these rights come into play: An investor offers to purchase a portion of a founder's shares at a very high price, and the price is beyond the reach of other stockholders exercising holding rights of first refusal. A right of co-sale provides them with an avenue to participate in the transaction and sell a portion of their shares at the same favorable price.