For our Insights and Opinions section on a quiet holiday Monday, we're featuring some background on the concepts behind anti-dilution and how it's used by venture capital firms in fundings. This piece comes from Louis Wharton, Partner with Stubbs Alderton & Markiles, LLP.
Prudent investors often request some protection against the risks associated with a decrease in the value of a company in which they have invested (referred to herein as the issuer). This protection is typically effected through the anti-dilution provisions included in the issuer’s certificate of incorporation. Anti-dilution protection ensures that in the event of a down round (i.e. the issuer issues shares after the accepting the investor’s investment at a price below the price that the investor paid for her shares) the investor will suffer a more limited amount of dilution (i.e. a smaller reduction in the investor’s equity holdings). (Continued...)
Read the full article at A Primer On Anti-Dilution.