Emerging Enterprise Center Blog - Commentary and Analysis For Entrepreneurs and Startups

Bad times may well cause this beast to come out of its cave. Full ratchet antidilution is a provision that protects investors to the max from low priced issuances. The gist of this provision is that the conversion price of a security (usually preferred stock, but not necessarily) will be reduced to the lowest price at which a company sells any shares of its common stock. So, if you have 1,000,000 shares of preferred outstanding with a conversion rate of $1.00, these shares will convert into 1,000,000 shares of common stock. However, if these shares have a full ratchet antidiluton provision and you issue... More

In a recent board meeting for a client, one VC director described the current investment climate as follows:  "flat is the new up 50%."  Assuming he is right, and I think he probably is, several things follow.  Some of them are obvious.  Valuations are down; it is harder to get money than it was just a few months ago etc. However, here is another prediction (perhaps it is obvious as well).  Certain deal terms that we have not seen since 2001 will start cropping up like mushrooms after rain.  Look out for full-ratchet antidilution provisions and multiple X preferences.  Also,... More