Anti-Dilution Protection

The video tutorial explains anti-dilution protections, which safeguard preferred shareholders from ownership dilution when a company issues new shares at a lower value. It covers conversion ratios, full ratchet, and weighted average anti-dilution methods, including broad and narrow calculations, to maintain shareholder value during down rounds.

What is the primary purpose of anti-dilution protections?

• To reduce the number of preferred shares

• To increase the value of common shares

• To protect preferred shareholders from ownership dilution

• To ensure the company can issue more shares

What happens to the conversion ratio in the event of dilution?

• It remains the same

• It decreases

• It is adjusted to protect the preferred shareholder

• It increases to favor common shareholders

In a full ratchet anti-dilution scenario, how is the conversion ratio affected?

• It is adjusted based on the number of shares sold

• It remains unchanged

• It decreases to protect common shareholders

• It is adjusted to maintain the original ownership percentage

Why is full ratchet anti-dilution protection considered harsh for companies?

• It does not consider the number of shares sold

• It benefits common shareholders

• It fully protects future investors

• It increases the company's valuation

What is a key feature of weighted average anti-dilution protection?

• It ignores the number of shares sold

• It provides extreme protection for preferred shareholders

• It is rarely used in practice

• It considers the number of shares sold

How is the new conversion price calculated in weighted average anti-dilution?

• By subtracting the new price from the original price

• By adding the original and new prices

• By multiplying the original price by a fraction

• By dividing the original price by the new price

What does a broad-based calculation in weighted average anti-dilution include?

• All options, warrants, and convertible shares

• Only preferred shares

• Only common shares

• Only shares sold in the current round

How does a broader base affect the conversion ratio in weighted average anti-dilution?

• It increases the ratio significantly

• It has no effect on the ratio

• It decreases the ratio significantly

• It makes the ratio closer to 1

What is the main difference between full ratchet and weighted average anti-dilution protections?

• Full ratchet is more commonly used

• Weighted average provides more protection

• Weighted average is harsher on the company

• Full ratchet does not consider the number of shares sold

Why is it important to consider all potential shares in anti-dilution calculations?

• To simplify the calculation process

• To increase the company's valuation

• To favor common shareholders

• To ensure accurate protection for preferred shareholders