Georgia Anti-Dilution Adjustments
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How to fill out Anti-Dilution Adjustments?
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FAQ
Full ratchet anti-dilution lowers the conversion price of the protected stock to the price paid in the down round. The new conversion price is then divided into the original issue price to arrive at the new conversion ratio.
Anti-dilution clauses That is, in case shares are issued at a lower price than the price per share that was paid by the existing shareholder. This is achieved by granting such existing investors the right to receive additional shares (referred to here as ?anti-dilution shares'') for free in the course of a down round.
The two common types of anti-dilution clauses are known as "full ratchet" and "weighted average." With a full ratchet provision, the conversion price of the existing preferred shares is adjusted downward to the price at which new shares are issued in later rounds.
For example, with a conversion rate of $0.50, an investor with one preferred stock will end up with twice as many common shares upon conversion. The full ratchet anti-dilution provision is rare due to the burden placed on the company's founders and initial investors.
Anti-dilution protection is a contractual right that prevents your ownership percentage in a company from decreasing when new shares are issued. For example, if you invest $1 million for 10% of a startup at a $10 million valuation, you own 1 million shares at $1 per share.
The anti-dilution adjustment clause is a provision contained in a security or merger agreement. The anti-dilution clause provides current investors with the right to maintain their ownership percentage in the company by purchasing a proportionate number of new shares at a future date when securities are issued.
An anti-dilution provision grants an investor the right to convert their preferred shares at the new price. Imagine you own preferred stock that you purchased for $20 per share. If the company that issued the shares goes public and issues shares at $15, the value of your investment would've gone down.
Exceptions to anti-dilution clauses These typically include shares issued pursuant to the exercise of share options or pursuant to warrants or other convertible instruments that are already outstanding on the issue date of the relevant convertible instruments.
