Full Ratchet

VCExperts

 

Full Ratchet provisions are the real killers, at least from the founder’s point of view. They provide that, if one share of stock is issued at a lower price, or one right to purchase stock is issued at a lower aggregate price (exercise price plus what is paid, if anything, for the right), then the conversion price of the existing preferred shares [1] is automatically decreased, that is, it “ratchets down,” to the lower price. [2] Depending on how many shares (or rights) are included in the subsequent issue, this can be strong medicine.

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