Sequoia Capital gave their company a round of equity investment. There is such a clause in it.
"If the company issues any new shares or makes capital increase, and the unit price of these new shares ("new low price ") is lower than the unit price of A shares (if the company's share capital changes due to the increase of registered capital and bonus shares, the unit price of A shares should be adjusted accordingly), then as an anti-dilution protection measure, investors have the right to further purchase the shares issued by the company ("additional shares ") at zero consideration or the lowest consideration permitted by other laws, or require existing shareholders to undertake anti-dilution obligations. Existing shareholders transfer their shares in the company to investors at zero consideration or the lowest price allowed by other laws, so that the average consideration paid by investors for all shares of the company (including A-round shares and additional shares) after the issuance of shares is equivalent to the new low price, except for the issuance of shares according to the employee stock ownership plan. " Don't you know? This is a common anti-dilution clause for investment institutions.
About the dilution of equity.
The dilution of equity that small companies often say is: "When I contribute 300,000 yuan and the registered capital of the company is 6,543,800 yuan, I account for 30%; Now new shareholders have come in to increase their capital to 6,543.8+200,000, and my 300,000 accounts for 25% of 6,543.8+200,000. It was diluted. " Another example: "Originally, you two were 70% and 30%, and the new shareholders contributed 65,438+00%, so you two were diluted in the same proportion, that is, the new equity ratio was 63%, 27% and 65,438+00%."
"Looking at the anti-dilution clauses of investors/investment institutions, first look at the definition:" Anti-dilution clauses, also known as anti-dilution agreements, are common in the field of private equity investment, and refer to the measures taken by investors to avoid the depreciation of their shares and excessive dilution of their shares in the process of financing or private placement of the target company. "It is generally agreed that if the future financing price is lower than the current investment price, the controlling shareholder shall transfer the shares to investors free of charge or adopt other means to make the investment price of investors not higher than the new issue price.
To put it simply: if the financing price is lowered, you can either give us shares (requiring existing shareholders and/or actual controllers to jointly transfer a certain number of shares of the company to this round of investors for free); Either give me money (ask existing shareholders and/or actual controllers to jointly pay cash compensation to this round of investors). In fact, the anti-dilution demanded by investors is nothing more than from two angles: first, to prevent the stock ratio from decreasing; Second, prevent the share from depreciating.
The former mainly involves the preemptive right, that is, when the target company issues new shares or the old shareholders transfer shares, under the same conditions, investors enjoy the preemptive right in proportion. This piece is not the focus of this article. The latter mainly involves price correction when financing at reduced prices. When the target company raises funds at a new round of price reduction, the investors' capital increase price needs to be adjusted according to the balanced weighted average method.
We further think: if you are an investor, your enterprise is developing well, and you are going up, you will increase capital at a premium in each subsequent round, so even if your share ratio is diluted, your investment will still make money, right? What you really want to object to is that because the founder shareholders subsequently raised funds at a low price and sold them at a low price, the people who bought them later bought the shares at a lower price than you. You think "it's unfair to me, you have to compensate me."
The low-cost financing of founder shareholders is often when the development of enterprises is not good and the valuation of enterprises falls. Compared with the front wheel, you can only discount financing. If discount financing is not allowed, the enterprise may close down and everyone will have no fun.
Then, can the founder shareholders not accept the anti-dilution clause required by investors? Or is it conditional? Yes, you can. For example, the anti-dilution clause only applies to the subsequent first financing (round B), and only when the discounted financing breaks through a certain reserve price, the company reaches a certain net profit, and so on.