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What are Anti-Dilution Provisions?

Posted by Erica Duignan Minnihan on May 15, 2016 3:00:00 PM

Anti-dilution is another one of those somewhat complex concepts that involve plenty of algebra. Basically, the idea is that they are meant to protect investors in the case of a “down-round”, or a capital raise that happens at a valuation lower than the one in which you purchased your securities.

Let’s say you made and investment in a company in 2015 when the market was relatively hot, and the founder convinced you to make a $1 million investment at a $9 million pre-money valuation in the Seed Round. But unfortunately in 2017, the market is not so frothy and the company is almost out of cash. In order to stay alive, they need to raise another $1 million at a $4 million pre-money valuation.

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Topics: Venture Investing, Venture Investing Academy, Anti-Dilution