A specialized service offered in certain exclusive establishments in The Red District in Amsterdam.
Also, a way of protecting against stock dilution.
If you own stock in a company, you don’t want that company issuing more stock. The more shares available, the less each share is worth...simple supply and demand.
The issuing of additional shares causes dilution in the pre-existing shares. A full ratchet provision represents a way to protect against dilution. It doesn’t apply to previous stockholders, though. It applies to people holding options to buy stock.
You hold an option to buy 1,000 shares of a company at $20 each. The full ratchet provision means that if the company sells stock at some point in the future at a lower price, you would get the right to buy at the lower price.
So, if the company tries to run a stock offering at $18 a share, you could exercise your option to purchase 1,000 shares at $18. Even though your option explicitly states $20, the full ratchet lets you buy shares at the lower price.
See: Venture Capital. See: Angel Round. See: A-Round.
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Finance: What are vanilla terms?0 Views
Finance allah shmoop what are vanilla terms Okay you're a
hot little startup you make turbocharged fidget spinners these things
on ly turbo they exist to relax really stressed out
lawyers bankers and you know politicos well Investors were all
excited about the prospects of speed turbo but have a
strong suspicion that this is a fad not a real
business at least not a business that will sustain itself
a decade or two even long enough Teo you know
go public so the term sheet proffered to the founders
seeking to raise money isn't vanilla of vanilla term sheet
would be a set of terms that would be easily
digestible to everyone really simple and really clean That's vanilla
investors generally get preferred stock which sits above common in
the priority stack in a liquidation like things go badly
and you have to sell the company preferred investors get
paid first but preferred investors normally get just one times
their money back in a sail and then split whatever's
left Well a non vanilla form of this term would
be where an investor gets three or four for five
times their money back first before the common stock gets
a dime that is if an investor is giving a
founder of a company with just a million bucks in
revenue a pre money valuation of some forty million dollars
and that investor invest ten million box with a five
acts lick prep for liquidity preference Well then the investor
gets back five times ten or fifty million dollars off
their ten Originally before the founders common stock gets paid
a dime in the case of a sale Now if
company does an ai po and half a billion dollar
valuation well then the preferred stock even it five x
converts to become common and everybody's happy But the five
x lick craft is not a vanilla term It has
spice Other vanilla terms might be where an investor asked
for a royalty of a few percent of revenues off
the top when they invest And yeah the bald guy
on shark tank seems to do this all the time
It's Why he's no longer mr wonderful you know like
why would you invest and then harm the company's profit
margins at the same time By taking the royalty on
revenues Yeah Makes no sense to us either Go figure
Mr wonderful what you're doing on that show Mmm Yummy
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