Jim Ryan wrote the column “Understanding Anti-Dilution” in the Journal of Artificial Intelligence and Robotics. Jim continues his discussion of core terms commonly seen in venture term sheets and the definitive financing documents that follow.
He examines another pillar of the investor rights suite: anti-dilution rights, specifically the price-based conversion adjustments most often found in venture financings (particularly those involving Delaware corporations).
Investors in public companies accept that the value of their investment moves in lockstep with market fluctuations. However, private company investors negotiate the valuation of the company at each investment, and one of the rights they commonly demand in exchange for taking the risk of investing in earlier-stage, illiquid companies is some degree of protection if the valuation declines after their investment.
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