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More in the 50 Questions Series50 Questions: What financial information does a VC want to see? | Is venture capital right for your company? | 50 Questions: How do VCs make investment decisions? |
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.