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Angels, Dragons and Vultures: How to Tame Your Investors And Not Lose Your Company by Simon Acland

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Anti-dilution

“Anti-dilution, eh? Well, I’m with you there, Vulture. I am anti-dilution in principle. But surely you are not anti-dilution. You are the one who is causing me dilution. So why have you got an anti-dilution clause in your term sheet?”

Your prospective Vulture shuffles his claws uncomfortably. Just read it again, more slowly this time, he says. You read it again.

“OK, I think I understand now. If we have to raise another round of funding, and can only do so at a lower price, then you get more shares so that your overall price goes down to the same price as that next round. So tell me, Vulture, why is that fair? Effectively you want an option to reduce the price paid if future events demonstrate that you were wrong to pay the price ...

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