What is weighted average anti-dilution?

What is weighted average anti-dilution?

​Definition​ Weighted average anti-dilution is a form of anti-dilution that uses a relative (weighted) formula in a down round or other stock dilution to decrease the price at which preferred stock can convert into common stock.

How do you calculate anti-dilution?

Very simply, if the original conversion price was $5 and in a later round the conversion price is $2.50, the investor’s original conversion price would adjust to $2.50. The weighted average provision uses the following formula to determine new conversion prices: C2 = C1 x (A + B) / (A + C)

How do you calculate broad based weighted average anti-dilution?

The formula for a broad-based weighted average is: (Common outstanding previously issued + common issuable for the amount raised at the prior conversion price) ÷ (Common outstanding previously issued + common issued in the new deal).

What does anti-dilution mean?

Anti-dilution provisions are clauses that allow investors the right to maintain their ownership percentages in the event that new shares are issued. Dilution refers to a shareholder’s ownership decreasing as a result of new shares being issued.

What is the difference between full ratchet and weighted average anti dilution clause?

The most common form of anti-dilution protection is called “weighted average” anti-dilution protection. “Weighted-average” anti-dilution is fairer than a full-ratchet as it looks at the dilutive impact of the shares issued in a down-round across a company’s share capital.

What is the difference between broad based and narrow based anti dilution?

Typically, broad-based also includes common stock reserved for issuance pursuant to outstanding options and warrants. Narrow-based adjustments typically include only the common shares and preferred shares outstanding, not the shares reserved for issuance pursuant to outstanding options and warrants.

What is the difference between full-ratchet and weighted average anti-dilution clause?

What is the difference between broad based and narrow based anti-dilution?

What is the difference between a full ratchet and weighted average anti-dilution clause?

Unlike full ratchet anti-dilution protection that is effectively a “ do-over,” weighted average anti-dilution protection gives consideration to the relationship between the total shares outstanding as compared to the shares held by the original investor.

What is the difference between full ratchet and weighted average anti-dilution clause?

Is pro rata the same as anti-dilution?

On its own, the pro rata right protects your investor against dilution of his stake, but offers nothing against dilution of his value. For that reason, your investment termsheet might contain an anti-dilution protection, or “ratchet.”

What is the difference between broad-based and narrow based anti dilution?

Which is the most preferred method of anti dilution protection from the founder perspective?

The broad-based weighted average anti-dilution provision is the best one for the founders. A broad-based weighted average for shareholders of a company’s preferred stock gives investors anti-dilution protection when a company issues new shares.

Is dilution a good thing?

Because dilution can reduce the value of an individual investment, retail investors should be aware of warning signs that may precede potential share dilution, such as emerging capital needs or growth opportunities. There are many scenarios in which a firm could require an equity capital infusion.