Question

An investor purchases 150,000 shares with anti-dilution rights for $500,000. In a subsequent financing round, a new investor invests $100,000 for 50,000 shares.
Is the subsequent financing round a up-round or a down-round?

What is the weighted average price of the two rounds?

How many new shares must the first investor be given under the anti-dilution provision?

Answer 1

Number of shares issued in First round of financing with anti-dilution rights   = 150,000

Amount realised in first round of financing       = 500,000

Purchase price per share in first round of financing with anti-dilution rights (500,000/150,000)        =3.333

Subsequent finnancing

Number of shares issued in subsequent financing round =50,000

Amount received in subsequent financing =100,000

Issue price per share in subsequent financing (100,000/50,000) =2

A company offering additional shares for sale at a lower price( 2) than had been sold for in the previous financing round(3.333). Therefore subsequent financing is Down-round.

In first round of financing investor paid $ 3.333 per share.in subsequent round of financing new investor only paid $2 per share.That means he paid $ 1.333(3.333-2) extra amount per share.

Total extra amount paid in first financing(150,000*1.3333) =$200,000(approximately)

Number of new shares should be given under anti dilutive provision(200,000/2) =100,000 shares