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More in the 50 Questions Series50 Questions – What are the different types of instruments VCs use to invest? | 50 questions: What does a VC care about? | 50 questions: How long will it take my company to raise venture capital? |
50 Questions: What is anti-dilution/downround protection?
Together with Nic Brisbourne of The Equity Kicker / DFJ Esprit, I am writing a series of 50 questions you should ask when raising venture capital. We expect the series to run for a year, after which we will collate the answers into a book. We view this as a collaboration, so please comment to help make this series even more useful. This is #36 in the series.
In his post Key terms in a termsheet Part 2, Nic covered the basics of anti-dilution. In that post he wrote that there are three flavours of anti-dilution:
- Full ratchet
- Narrow-based weighted average
- Broad-based weighted average
In this post Nic goes into a little more detail on each of the three mechanisms. In a very thorough explanation, he provides a typical mathematical formula for each type of anti-dilution and a worked example.
To learn more about the three mechanisms behind anti-dilution, go to 50 Questions: What is anti-dilution/downround protection? at the Equity Kicker.