How does broad-based anti-dilution work?

Broad-based weighted-average anti-dilution protection results in shares of preferred stock being convertible into additional shares of common stock, but unlike a ratchet provision, the size of the adjustment depends on the number of shares sold relative to the company’s existing stock as well as the difference in the …

What is the difference between broad-based and narrow based anti-dilution?

Typically, broad-based also includes common stock reserved for issuance pursuant to outstanding options and warrants. Narrow-based adjustments typically include only the common shares and preferred shares outstanding, not the shares reserved for issuance pursuant to outstanding options and warrants.

How does anti-dilution protection work?

Anti-dilution provisions act as a buffer to protect investors against their equity ownership positions becoming diluted or less valuable. This can happen when the percentage of an owner’s stake in a company decreases because of an increase in the total number of shares outstanding.

What is weighted average anti-dilution?

​Definition​ Weighted average anti-dilution is a form of anti-dilution that uses a relative (weighted) formula in a down round or other stock dilution to decrease the price at which preferred stock can convert into common stock.

What is narrow based weighted average anti-dilution?

A narrow-based weighted average is an anti-dilution provision used to ensure that investors aren’t penalized when companies issue new shares. It takes into account only the total number of outstanding preferred shares for determining the new, weighted-average price for the old shares.

What is meant by anti-dilution give your own example?

An anti-dilution provision grants an investor the right to convert their preferred shares at the new price. Imagine you own preferred stock that you purchased for $20 per share. If the company that issued the shares goes public and issues shares at $15, the value of your investment would’ve gone down.

What is meant by the term anti-dilution?

Antidilutive refers to activities that maintain or increase EPS and shareholder voting power. Conversely, dilutive describes the effect of certain actions or activities that reduce EPS. As a result of dilutive activities, existing shareholders’ ownership interests are reduced.

How does weighted average anti-dilution work?

The formula for weighted average anti-dilution compares: the amount of money previously raised by the company and the price per share at which it was raised, with. the amount of money currently being raised by the company in a down round or other stock dilution, and the price per share at which this new money is raised …

What is full ratchet anti-dilution protection?

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.

What is broad-based weighted-average anti-dilution protection?

Broad-based weighted-average anti- dilution protection results in shares of preferred stock being convertible into additional shares of common stock, but unlike a ratchet provision, the size of the adjustment depends on the number of shares sold relative to the company’s existing stock as well as the difference in the price.

What is the most common type of anti-dilution protection?

The most common anti-dilution protection is called “weighted average” anti-dilution protection. This formula adjusts the rate at which preferred stock converts into common stock based upon (i) the amount of money previously raised by the company and the price per share at which it was raised and…

What is the anti-dilution provision for preferred shares?

This anti-dilution provision takes into account only the total number of outstanding preferred shares when calculating the new weighted average price for existing shares. A narrow-based weighted average excludes options, warrants, and shares that are issuable as part of stock incentive pools.

What is the broad-based weighted average (BBWA)?

Updated Feb 28, 2018. The broad-based weighted average is an anti-dilution provision used for the benefit of existing preferred shareholders when additional offerings are made by the corporation.