The Funding MAC Clause: How a Lender Can Walk From Your Undrawn Tranches
A funding material adverse change (MAC) clause lets a venture lender refuse to advance money you have not drawn yet, even after both sides sign the term sheet, if the lender decides your business has materially worsened. It is separate from a MAC event of default, and the wording is usually broad enough to hand the lender wide discretion over capital you are counting on.
Founders read a signed venture debt term sheet as committed capital. Much of it is not. The headline facility is a ceiling, and several clauses let the lender release less than that, or nothing, if conditions change between signing and your next draw. The quietest of these is the funding MAC, and it usually sits near the bottom of the document where it gets the least attention.
What is a material adverse change clause in venture debt?
A material adverse change clause gives the lender the right to act if your business, finances, or prospects deteriorate in a way they judge significant. In venture debt it appears in two forms: as an event of default on money already drawn, and as a funding condition that lets the lender hold back money you have not drawn yet.
The two forms do different damage. As an event of default, a MAC lets the lender call an existing loan, the same way a tripped covenant would. As a funding condition, it lets the lender decline a future tranche while leaving your earlier draws in place. The first is a risk founders already watch through their covenant package. The second catches teams off guard, because it turns a commitment they have planned around into something optional for the lender. Kruze Consulting notes how loosely the term tends to be defined, which is what makes it powerful.
How can a lender refuse to fund a tranche you already signed for?
The gap is timing. A MAC clause usually applies in the stretch between signing and the moment credit actually becomes available, and that stretch can run for months. Venture facilities often pair a first draw with one or more later tranches released against milestones. The funding MAC sits on top of those milestones as a second test: even if you hit the metric trigger, the lender can still decline if they judge that a material adverse change has occurred.
What counts as material is rarely spelled out. The definition tends to be vague and open to interpretation, which is the point from the lender's side, since it preserves their discretion. Lenders have pointed to a worsening fundraising climate, a large lawsuit, or a change in senior management as grounds. For a team that built its runway plan around a tranche arriving on a set date, a funding MAC makes that date conditional in a way the cash-flow model never showed. Mercury's term-sheet guide flags the funding condition as one of the clauses founders skim past at their cost.
| Clause | What it lets the lender do | Your exposure |
|---|---|---|
| Funding MAC | Decline to advance an undrawn tranche | Capital you planned for never arrives; earlier draws stay outstanding. |
| MAC event of default | Call a loan you have already drawn | Repayment accelerates on money you have already spent. |
| Investor abandonment | Default if your investors signal they will stop backing you | Your cap table, not your operations, triggers the lender. |
The investor abandonment clause deserves its own line. It lets a lender call a default if your existing investors make clear they will not keep funding the business in the amount and timeframe needed to service the loan. For a venture-backed company that ties the lender's confidence to your next equity signal, which is exactly the moment a funding MAC is most likely to bite as well.
Business MAC vs market MAC: which risks are yours?
Not every bad event should be your problem, and a well-drafted clause says so. A business MAC covers company-specific deterioration: shifts in your liabilities, assets, intellectual property, market access, or key contracts. A market MAC covers general conditions, the economy, your sector, rates, new regulation. Standard lending practice allocates company-specific risk to the borrower and carves out broad market risk, since a founder cannot steer a sector-wide downturn.
The carve-out is where the negotiation lives. A clause that lets the lender walk because the funding market cooled puts a risk on you that you cannot manage. Pushing general economic, political, market, and regulatory changes into an excluded list narrows the MAC to events you actually drive. One nuance survives most carve-outs: if an industry downturn hits your company far harder than its peers, the disproportionate share of that damage can still count as a MAC. That is defensible, and it reads very differently from a lender citing the macro climate on its own. Orrick's review of default provisions walks through how narrowly these definitions can, and should, be drawn.
How do you negotiate a funding MAC clause?
Start by trying to strike the funding MAC outright, then fall back to narrowing it. The strongest position replaces lender discretion with objective triggers: define the funding condition as specific, measurable thresholds rather than a judgment call. If your draw is already gated on a metric milestone, argue that the milestone is the test and that a separate vague MAC on top of it is redundant. Tie the lender's comfort to numbers, not mood.
This is where unit economics do real work. A lender who can see durable CAC payback, retention, and margin has less reason to insist on a discretionary escape hatch, because the data already shows the trajectory. Framing customer acquisition as capital deployment through the EBITCAC lens gives you a concrete basis to propose metric-based funding conditions in place of a catch-all MAC. If you cannot remove or narrow the clause, the blunt fallback is to draw the full facility upfront, so there is no undrawn tranche for a funding MAC to reach, though that trades the problem for the carrying cost of cash you may not need yet. Read the MAC beside the rest of the sheet, since a funding MAC, a tight covenant, and an aggressive amortization start compound into far less usable capital than the headline figure.
Frequently asked questions
Is a funding MAC the same as a MAC event of default? No. A funding MAC lets the lender refuse to advance an undrawn tranche, while a MAC event of default lets them call a loan you have already taken. A term sheet can contain both, aimed at different pools of money.
What can trigger a material adverse change? The definition is usually broad, but lenders have cited a worsening fundraising market, major litigation, the loss of a key customer or executive, and sharp drops in the metrics behind the loan. The vaguer the wording, the more events qualify.
Can I get a funding MAC removed? Sometimes, especially with strong metrics and competing offers. If you cannot remove it, narrow the definition, add market carve-outs, and push for objective thresholds. As a last resort, drawing the full amount upfront removes the undrawn tranche a funding MAC relies on.
What is an investor abandonment clause? It lets the lender call a default if your investors signal they will not continue backing the company at the level needed to repay the loan. It links the lender's rights to your equity story rather than your day-to-day operations.
A venture debt commitment is only as firm as the conditions attached to it. The funding MAC is the clause most likely to convert a number you planned around into capital the lender can withhold, and it rewards reading before you sign rather than after you need the money. For how the same scrutiny applies across the whole instrument, the comparison of revenue-based financing and venture debt and the overview of non-dilutive financing for SaaS startups set the trade-offs side by side.
