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.