Down Round Protection

A clause in an investment agreement that protects existing investors from ownership dilution if the company raises a subsequent round at a lower valuation (a down round). Common mechanisms include full ratchet and weighted-average anti-dilution.

The earliest formal round of equity financing, typically used to fund product development, initial hiring, and market validation. Seed rounds are usually raised from angel investors, seed funds, or accelerators, with investment sizes ranging from tens of thousands to several million pounds.

Legal safeguards that protect individuals who report illegal, unethical, or dangerous activities within organisations from retaliation, including dismissal, demotion, or harassment. In the EU, the Whistleblower Protection Directive (2019/1937) requires companies with 50+ employees to establish internal reporting channels, while the UK's Public Interest Disclosure Act 1998 provides employment tribunal remedies.

A structured process required under GDPR Article 35 to identify, assess, and mitigate privacy risks arising from data processing activities that are likely to result in high risk to individuals. DPIAs are mandatory before deploying new technologies, large-scale profiling, or processing sensitive personal data, and must document the necessity, proportionality, and safeguards of the proposed processing.

The contractual right of existing shareholders to participate in future funding rounds on a pro-rata basis, maintaining their ownership percentage. Pre-emption rights protect early investors from dilution and are a standard provision in shareholders' agreements.

A detailed register of a company's equity ownership structure showing all shareholders, their percentage ownership, share classes, options, warrants, and the dilutive effect of each financing round. A clean cap table is essential for fundraising and exit readiness.

The reduction in existing shareholders' ownership percentage when a company issues new shares, typically during a fundraising round. Dilution is an expected part of growth financing, but founders and early investors monitor it closely to protect their economic interest.

A non-binding document outlining the key terms and conditions of a proposed investment, including valuation, investment amount, equity stake, board rights, liquidation preferences, anti-dilution provisions, and other protective clauses. The term sheet forms the basis for negotiation before definitive legal agreements are drafted.

Flat, Up or Down: Bridge Valuation Mechanics

How should founders structure and maintain their cap table?

A well-structured cap table tracks all equity ownership, options, convertible instruments, and vesting schedules on a fully diluted basis — founders should maintain it from day one using dedicated software.

How does equity dilution work across funding rounds?

Equity dilution occurs when new shares are issued in a funding round, reducing existing shareholders' ownership percentages — though not necessarily the value of their holdings if the company's valuation increases.

What is the difference between the EIS and SEIS schemes for startups?

SEIS (Seed EIS) offers investors 50% income tax relief on up to £200K a year in qualifying seed-stage companies; EIS offers 30% relief on up to £1M a year (£2M with knowledge-intensive companies) for growth-stage companies.