Investment. Anti-Dilution: Is It Fair?
Anti-dilution represents a clause in a contract that provides investors with the right to keep the same percentage of a company’s ownership by buying a proportional number of shares in the future when securities are issued. It allows the protection of the shares and assets of the initial and previous investors. Such a form of protection can be appropriate for investors concerned about the future potential down rounds because it allows influencing voting privileges of stockholders on the ground that initial ones are quite often qualified for a vote on as changed over to common stock premise. For entrepreneurs, an anti-dilution clause in a contract could be among the only ways to persuade investors to provide their financial support because they offer a safety net. The provision will be included in an agreement convertible to common stock, which gives common stockholders the right to vote. While it can be challenging to deal with stockholders’ votes, an entrepreneur should agree to them because they are appealing to investors, protect their equity and make them more likely to invest more, as well as secure common stock value if done the right way.
As an investor, one may question the difference between common and preferred stocks and their influence on voting rights at companies. In addition, investors can consider weighted average anti-dilution provisions and their impact on fairer protection. Preferred stockholders are being protected in such an anti-dilution scenario with no harm caused to common stakeholders. Also, an investor will consider the possibility of dilution occurrence even when additional stocks are not issued. This can take place if there are option owners with a company and if specific options are exercised.