A provision that provides an investor with down-round protection (i.e., where the company raises a subsequent round of financing, including IPO, at a lower price) by providing additional shares in the following round. In the IPO context, a ratchet provision provides that if the IPO price does not meet a certain level, say at least the price paid by the investor in the private round or some baked in the rate of return above that price, the IPO conversion of those shares to common shares is adjusted such that an additional number of shares are issued to investors to avoid any down-round dilution effect.
A provision that provides an investor with down-round protection (i.e., where the company raises a subsequent round of financing, including IPO, at a lower price) by providing additional shares in the following round. In the IPO context, a ratchet provision provides that if the IPO price does not meet a certain level, say at least the price paid by the investor in the private round or some baked in the rate of return above that price, the IPO conversion of those shares to common shares is adjusted such that an additional number of shares are issued to investors to avoid any down-round dilution effect.
