Comments on: What is weighted average anti-dilution protection? http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/ Venture capital, seed financings, convertible note bridge debt, M&A, option vesting and other matters explained for founders and entrepreneurs Thu, 11 Mar 2010 09:37:25 +0000 http://wordpress.org/?v=2.9 hourly 1 By: Yokum http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/comment-page-1/#comment-2970 Yokum Thu, 25 Dec 2008 05:19:44 +0000 http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/#comment-2970 No. Different concept. No. Different concept.

]]> By: Yokum http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/comment-page-1/#comment-1259 Yokum Wed, 24 Dec 2008 22:19:44 +0000 http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/#comment-1259 No. Different concept. No. Different concept.

]]> By: Mary Grybko http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/comment-page-1/#comment-1258 Mary Grybko Tue, 23 Dec 2008 14:10:27 +0000 http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/#comment-1258 Is this something I would use to figure out the rate of return on net proceeds so that no dilution of earnings per share occurs? I'm working on a problem which asked me to compute the potential dilution of new stock issue, as well as computing the net proceeds. Is this something I would use to figure out the rate of return on net proceeds so that no dilution of earnings per share occurs? I'm working on a problem which asked me to compute the potential dilution of new stock issue, as well as computing the net proceeds.

]]> By: Yokum http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/comment-page-1/#comment-956 Yokum Sat, 27 Sep 2008 08:09:50 +0000 http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/#comment-956 @Mike - Anti-dilution clauses are actually relevant and triggered from time to time (as opposed to demand registration rights or redemption rights, which I have never seen used). I think that a protective provision by itself probably isn't enough to protect a preferred investor. If the company does not get a subsequent down-round financing completed, the company may dissolve. If there are new investors in the down-round financing, the existing preferred investors have to choose between (i) rejecting the financing and dissolving the company, and (ii) accepting a dilutive financing. In most cases, the existing preferred investors have no choice but to accept the dilutive financing. If there are anti-dilution provisions, the existing preferred investors can accept the down-round financing and push the effect of the dilution to common shareholders. @Mike – Anti-dilution clauses are actually relevant and triggered from time to time (as opposed to demand registration rights or redemption rights, which I have never seen used). I think that a protective provision by itself probably isn’t enough to protect a preferred investor. If the company does not get a subsequent down-round financing completed, the company may dissolve. If there are new investors in the down-round financing, the existing preferred investors have to choose between (i) rejecting the financing and dissolving the company, and (ii) accepting a dilutive financing. In most cases, the existing preferred investors have no choice but to accept the dilutive financing. If there are anti-dilution provisions, the existing preferred investors can accept the down-round financing and push the effect of the dilution to common shareholders.

]]> By: Mike http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/comment-page-1/#comment-954 Mike Fri, 26 Sep 2008 16:34:31 +0000 http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/#comment-954 Yokum, I would appreciate your thoughts on something that has always bugged me about this. Given that any subsequent rounds of equity financing will demand to come in as senior to the existing preferred, and that the existing preferred will uniformly have veto rights over the creation of any senior class of preferred, why are all of these elaborate anti-dilution provisions necessary? Would the venture world be any different if all these anti-dilution provisions went away and the preferrreds simply retained their veto over the creation of any senior classes? Another way of asking this question: have you ever seen these provisions actually triggered? Thanks for your very informative site. Yokum,

I would appreciate your thoughts on something that has always bugged me about this.

Given that any subsequent rounds of equity financing will demand to come in as senior to the existing preferred, and that the existing preferred will uniformly have veto rights over the creation of any senior class of preferred, why are all of these elaborate anti-dilution provisions necessary? Would the venture world be any different if all these anti-dilution provisions went away and the preferrreds simply retained their veto over the creation of any senior classes? Another way of asking this question: have you ever seen these provisions actually triggered?

Thanks for your very informative site.

]]> By: Yokum http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/comment-page-1/#comment-376 Yokum Thu, 15 Nov 2007 04:55:16 +0000 http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/#comment-376 The purpose of preferred stock anti-dilution adjustment is NOT to maintain a specific absolute ownership percentage. It is simply to give the investor the benefit (via a conversion adjustment) of issuances of stock at lower prices in the future. The purpose of preferred stock anti-dilution adjustment is NOT to maintain a specific absolute ownership percentage. It is simply to give the investor the benefit (via a conversion adjustment) of issuances of stock at lower prices in the future.

]]> By: Mike http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/comment-page-1/#comment-374 Mike Wed, 14 Nov 2007 16:34:20 +0000 http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/#comment-374 Can you elaborate on the mathematical goal of the anti-dilution adjustment? I originally thought this protection gave the preferred the same percentage ownership, as converted, before and after the dilutive event, but my math never seems to work out to confirm this after doing the conversion price adjustment. Is there some other calculation I could do to verify my new CP is correct, particularly in light of the weighted average name of the provision? That is, what am I averaging out? Thanks. Can you elaborate on the mathematical goal of the anti-dilution adjustment? I originally thought this protection gave the preferred the same percentage ownership, as converted, before and after the dilutive event, but my math never seems to work out to confirm this after doing the conversion price adjustment. Is there some other calculation I could do to verify my new CP is correct, particularly in light of the weighted average name of the provision? That is, what am I averaging out?

Thanks.

]]> By: Mike http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/comment-page-1/#comment-372 Mike Tue, 13 Nov 2007 21:36:17 +0000 http://www.startupcompanylawyer.com/2007/08/04/what-is-weighted-average-anti-dilution-protection/#comment-372 Great article. Very useful. Great article. Very useful.

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