CA Final · Advanced Financial Management · Startup Finance
Which term sheet clause protects an investor against dilution if the startup later issues shares at a price lower than the investor's round price?
Anti-dilution protection is the clause. It adjusts the investor's conversion price or share count when a later round is priced below the investor's price, limiting the value loss. Drag-along, tag-along and first refusal deal with sale and transfer of shares, not down-round pricing.
- AAnti-dilution (price-based) protectionCorrect
- BDrag-along right
- CTag-along right
- DRight of first refusal
Explanation
Anti-dilution adjusts the investor's conversion price after a down round. Drag-along forces minority sale, tag-along lets investors join a founder's sale, and ROFR gives a right to buy offered shares first.
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