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There is a big point missing in the article: The dynamics of the folks entering the next round with those in the current round. For example: The purchasers of
by jpdoctor 14y ago
There is a big point missing in the article: The dynamics of the folks entering the next round with those in the current round.
For example: The purchasers of the next round would be idiots to let the first investor execute the equivalent of a full ratchet, and all such provisions are usually throw-aways in a negotiation.
- msuster 14y agoNot true. The full ratchet is implicit in the deal. If the deal said $8m cap and next investor invests at $4m then the deal gets done as $4m and doesn't impact the next investor. It comes out of founders' equity. It is the "equivalent" of a full ratchet but disappears after the deal is done.
- jpdoctor 14y ago> It comes out of founders' equity And how is the next investor incentivized to let that occur? Edit: I should be more explicit. The next investor is anti-incentivized to let it occur, which is why it gets negotiated away by sensible investors.