Today's word: FULL RATCHET
Theme for this fortnight: VENTURE CAPITAL
An anti-dilution provision that, for
any shares of common stock sold by a company after the issuing of an option (or
convertible security), applies the lowest sale price as being the adjusted
option price or conversion ratio for existing shareholders.
Full-ratchet anti-dilution
protection allows an investor to have his or her percentage ownership remain
the same as the initial investment.
For example, an investor who paid
$2 per share for a 10% stake would get more shares in order to maintain that
stake if a subsequent round of financing were to come through at $1 per share.
The early round investor would have the right to convert his shares at the $1
price, thereby doubling his number of shares.
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