Dilution Protection
What is Dilution Protection?
Dilution protection refers to provisions in investment agreements that help protect investors’ ownership percentages from being significantly reduced in future funding rounds. These provisions, such as anti-dilution clauses, ensure that investors maintain a certain level of equity in the company, even if additional shares are issued at lower valuations.
Types of Dilution Protection
- Full Ratchet: Adjusts the conversion price of shares to match the lowest share price in future funding rounds.
- Weighted Average: Adjusts the conversion price based on the total number of new shares issued and the price at which they are sold.
- Pay-to-Play: Requires investors to participate in future rounds to maintain their anti-dilution protection.