The meaning of Anti-dilution Clause explained

An anti-dilution clause is a provision commonly included in the financing agreements of startup companies. This clause protects investors by ensuring that their ownership stake in the company is not diluted as a result of future financing rounds.

In a typical startup financing round, investors provide the company with capital in exchange for equity in the company. If the company raises additional capital in the future, this can dilute the ownership stakes of the existing investors. For example, if an investor owns 10% of a company and the company raises additional capital, the investor's ownership stake may be reduced to 5% or even less.

An anti-dilution clause helps protect investors from this dilution by giving them the option to purchase additional shares of the company at a discounted price. This helps to maintain the investor's ownership stake in the company and ensures that they are not disadvantaged by the company raising additional capital.