What is a full ratchet anti-dilution?

A full ratchet is an anti-dilution provision that applies the lowest sale price as the adjusted option price or conversion ratio for existing shareholders. It protects early investors by ensuring they are compensated for any dilution in their ownership caused by future rounds of fundraising.

How does pro rata pay work?

In its most basic form, a pro rata salary is an amount of pay you quote an employee based on what they would earn if they worked full-time. For example, if an employee’s salary would be £20,000 pro rata in a 40-hour week, but they only work 30 hours a week, their annual salary would be £15,000.

What are the pay to play provisions in VC?

In their simplest form, such provisions require existing investors to invest on a pro rata basis in subsequent financing rounds or they will lose some or all of their preferential rights (such as anti-dilution protection, liquidation preferences or certain voting rights ). Video Player is loading. This is a modal window.

What is a pay to play provision in a financing?

Pay to play provisions tied to dilutive financings provide that only investors that participate in the dilutive financing are entitled to the benefit of the anti-dilution formula in effect. Investors that do not participate do not receive any anti-dilution protection.

What does pay to play mean in eve of financing?

(That’s called “eve of financing” pay to play). Pay-to-play provisions can, however, be drafted to apply to any future financing, regardless of whether it is a down round or not, to ensure the future support of all investors. What does a typical example look like?

When to use pay to play in term sheet?

Pay-to-play provisions can, however, be drafted to apply to any future financing, regardless of whether it is a down round or not, to ensure the future support of all investors. What does a typical example look like? Here’s what a typical pay-to-play provision may look like in the term sheet (the bracketed language offers various alternatives):