Colin Barry

VC Problem Set (EF, Friday, Week 3)


Full ratchet anti-dilution protection (basically, dilution in a down-round comes entirely from founder/management) is dangerous for entrepreneurs, and often a sign of an inexperienced investor.

Participating preferred stock increases VC's share of payout during medium-sized exits. It may encourage founders to take additional risk because the difference between an exit at 1x and an exit at 2x (for example) might accrue entirely to investors.

Also, being a VC looks like fun: