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Anonymous

Hey I am on Medial • 11m

✨ ENTREPRENEURS IQ TEST ✨ In the context of venture capital, which term describes a contractual clause that allows investors to protect their investment by requiring the startup to grant them the option to purchase additional shares at a discounted rate if new funding rounds are conducted at a lower valuation than their initial investment ?

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Anonymous

Anonymous

Hey I am on Medial • 11m

What is — Anti-Dilution Provision An anti-dilution provision is a contractual clause that protects investors from losing their ownership percentage if new shares are issued at a lower price than their initial investment. This provision ensures that investors can purchase additional shares at the lower price to maintain their ownership stake. Example: Imagine you invested in a startup and bought 1,000 shares at $100 per share, totaling an investment of $100,000. Now, the company is raising funds again and issues 1,000 shares at $80 per share.With an anti-dilution provision, your investment is protected. This means you would have the right to purchase additional shares at the $80 price to maintain your ownership percentage and ensure your investment value doesn’t decrease. This helps investors avoid having their stake diluted when new shares are issued at a lower price.

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