January 19, 2017  
 
  Entrepreneurs  
  Equity Dilution in Funding Rounds  
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Before raising money for a business, it's important to make sure you understand equity dilution. Read our articles to learn important capital-raising concepts like pre-money valuations, post-money valuations, anti-dilution provisions and other topics related to raising money from venture capitalists or other equity investors.

Equity Dilution in Funding Rounds

  • Understanding Dilution - Understanding dilution is critically important for any entrepreneur who plans on raising venture capital money to help grow their startup. Learn these basics of dilution before you start raising money.
  • How Equity Dilution Works - Equity dilution is the curse of the startup executive. If you don't understand how equity dilution works, you can find yourself working very hard.for very little.
  • Antidilution Clauses - Full-ratchet? Weighted ratchet? Down rounds? If it sounds like we're talking a foreign language, then you're not familiar with the concept of antidilution clauses -- and you should be if you're thinking about pursuing investment opportunities with venture capitalists.
  • Avoid Allegation of Impropriety in Dilutive Funding Rounds - Dilutive funding rounds (or down rounds) are a source of frustration for a company's existing investors. In many cases, their frustration boils over into a lawsuit. Before it gets to that point, there are a few ways to mitigate the risks of legal challenges surrounding investor equity dilution.
  • Pay-to-Play as a Counter to Antidilution Clauses - If you have to give antidilution protection to investors, make sure you only give antidilution protection to investors who are willing to continue to invest in your company. A "pay-to-play provision is the best way to ensure that antidilution clauses are not helping investors who won't stick around for subsequent rounds.
  • Equity Dilution In An Up Round - You've invested in a startup, but now a new round of financing will dilute your percentage ownership in the company. Is that good news or bad news? It depends on whether it's an up round or a down round. If it's an up round, you've got little reason to be unhappy.

  • How Founders Can Survive Down Round Equity Dilution - Founders find a down round of financing to be depressing because their ownership stake in their company dwindles. For founders, there are some solutions to this challenge that may need to be addressed with your investors.

 

 

 

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