Dilution Protection

Definition

Dilution Protection is a clause in an investment agreement that protects investors from equity dilution in subsequent financing rounds, typically by adjusting the price per share of the existing investment.

Usage and Context

Dilution protection is common in venture capital deals. It keeps an investor's ownership percentage stable during new funding rounds.

Frequently Asked Questions

What is the dilution clause in a shareholder agreement?
The dilution clause in a shareholder agreement protects an investor's share from losing value when new shares are issued.

What is the anti-dilution clause for investors?
The anti-dilution clause for investors is a rule in the agreement that prevents their share percentage from dropping in future funding rounds.

What is the best anti-dilution provision for entrepreneurs?
The best anti-dilution provision for entrepreneurs is one that balances new investment needs with protecting current investors' value.

Benefits

Dilution protection keeps investors happy by maintaining their share value. It also makes future funding rounds smoother.

Conclusion

Dilution protection helps investors keep their share value during new investments. It's a win-win for both investors and companies growing their business.