Module 5 · Chapter 13

The Down Round: Anti-Dilution and Pay-to-Play

A down round sells new shares below the last round's price. Clauses signed at earlier rounds then change investors' rights by themselves. This chapter shows what those clauses do and how to check them.

≈ 14 min read 8-question test

In this chapter

  • How anti-dilution lowers a conversion price, and why it issues no shares
  • What pay-to-play does to an investor who stays out of the new round
  • How to say who controls the company after a down round

13.1Down rounds in one paragraph

A down round is a round priced below the last one. What makes it hard is the paper signed at earlier rounds. Some of its clauses act by themselves when the price falls, whether anyone wants them to or not. They can change what a preference share converts into, take an investor's preference away and move control of the company.

Key point

Run every clause that reacts to a lower price before anyone signs. After completion it is too late to change what they do.

Also in this chapter

  1. The Series B: a round at half the price
  2. Three kinds of anti-dilution protection
  3. How the formula works
  4. The adjustment changes a price, not the register
  5. Why the Seed class got nothing
  6. Pay-to-play
  7. The argument over what counts in A
  8. One holding, four counts
  9. Two approvals before completion
  10. Your job

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