Ratchet
Content
Definition
A Ratchet is a provision in financing agreements that protects investors by adjusting the price of previously sold shares, typically in case of a down round.
Usage and Context
A ratchet protects investors by changing share prices in agreements if the company’s valuation drops.
Frequently asked questions
- What is the meaning of ratchet in finance? In finance, a ratchet is a protective measure ensuring investors get better terms if specific conditions, like lower valuations, occur.
- What is an example of a ratchet provision? A ratchet provision might give investors more shares if new shares are issued at a lower price, protecting against dilution.
- What does "full ratchet" mean in investing? "Full ratchet" protects investors by adjusting their shares to the lowest price offered to new investors during a down round.
Benefits
A ratchet protects investors by adjusting share prices in financing agreements during down rounds.
Conclusion
A ratchet protects investors by adjusting share prices if the company`s valuation drops.
