- Item type
- Periodical
- Language
- English
- Source
- Euromoney. Dec2003, Vol. 34 Issue 416, p28-28. 1p.
- Publication date
- 01/12/2003
- ISSN
- 00142433
The article presents information on the improvement of venture capital investment in start-up companies in the Silicon Valley area in Santa Clara County, California. The most telling sign of improvement may be the steady return to more traditional terms in the venture capital financings, the life blood of the thousands of emerging growth companies. Venture capital firms and other strategic investors have not only become more selective with their money; they have also been demanding increasingly aggressive financing terms. Investors have also been insisting on mandatory cumulative dividends and dragging along rights, allowing even non-majority investors to force the sale of a company. Even once rarely-used pay-to-play provisions, requiring investors to keep reinvesting in each financing round or have their preferred shares converted into common stock, have become commonplace. Arguably the least attractive trend, however, has been the increased inclusion of full-ratchet anti-dilution mechanisms in financings. Before the stock market bubble burst, most financings used what is known as a weighted average anti-dilution mechanism to compensate existing investors in a down round. By contrast, full ratchets allow existing investors to convert all their preferred shares to the lower share price, regardless of the number of cheaper shares being issued.
