medium · Private Equity pe-core
A growth equity firm invests $20 million for a minority stake in a company with a pre-money valuation of $80 million. The investment is structured as Series A Preferred Shares. Two years later, the company raises a 'down round' of $10 million at a $50 million pre-money valuation.
If the Series A shares have a full-ratchet anti-dilution provision, how is their conversion price adjusted?
- The conversion price is adjusted by the ratio of the new pre-money valuation to the old post-money valuation.
- The conversion price is reset entirely to the price per share of the new $10 million round.
- The conversion price remains the same, but the investor receives a liquidation preference multiplier of 2.0×.
- The conversion price is adjusted using a weighted average of the old price and the new price based on the relative size of the rounds.
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