In: Finance
Match the following terms with their definitions:
a. Pay to play ______ 1) Penalty for not keeping pro rata
b. Drag-along rights ______ 2) Right to first payment at exit
c. Redemption rights ______ 3) Veto of certain management actions
d. Anti-dilution protection ______ 4) Adjust price to protect against a down round
e. Liquidation Preference ______ 5) Investors demand money back
f. Protective provisions ______ 6) Force consent to a sale of stock
Answer:-
Pay to play- Penalty for not keeping pro rata
Drag-along rights - Force consent to a sale of stock
Redemption rights - Investors demand money back
Anti-dilution protection - Adjust price to protect against a down round
Liquidation Preference- Right to first payment at exit
Protective provisions -Veto of certain management actions
In venture capital, Pay to Play provision requires the investors to participate in financing with the companys request on a pro rata basis.
Drag-along rights is the right that the majority stakeholder of a company force the minority stakeholder to sell their stock.
Redemption rights is the right of the investors to give back the money that they paid.
In case of venture capital, Anti-dilution protect against down payment by adjusting the price at which the preferred stock converts into common stock. The down round means the issuance of stock at a price which is lower than the preferred issue price.
Liquidation Preference means the investors get their investment money back before the owers of the company gets.
Protective provisions give the right to investors to block certain management actions.