Anti-dilution protection, Business Economics

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Suppose that EBV makes a $6m Series A investment in Newco for 1m shares at $6 per share. One year later, Newco has fallen on hard times, and receives a $6m Series B financing from Talltree for 6m shares at $1 per share. The founders and the stock pool have claims on 3m shares of common stock.

Following the Series B investment, what percentage of Newco (fully diluted) would be controlled by EBV? Consider the following cases:

a) Series A has no anti-dilution protection

b) Series A has full-rachet anti-dilution protection

c) Series A has round-based weighted-average anti-dilution protection

d) Series A has percentage based anti-dilution protection in which the faction of the firm owned by EBV remains constant.


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