Pre-Emption Rights

A provision that allows majority shareholders (or lead investors) to force minority shareholders to join in the sale of the company on the same terms. Drag-along rights prevent minority holders from blocking an exit that the majority supports.

Legal entitlements to exploit subsurface resources such as oil, gas, or minerals. Mineral rights are intangible assets that can carry substantial value, require specialised valuation techniques based on reserve estimates and commodity prices, and are subject to depletion accounting rather than amortisation.

The ownership stake held by a company's founders, typically established at incorporation and subject to dilution through subsequent funding rounds. Founders' equity is usually subject to vesting schedules and may carry different rights from investor shares, reflecting the intangible contribution of the founding team's vision and early-stage effort.

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.

A transaction in which existing shareholders sell their equity to new investors rather than the company issuing new shares. Secondary sales provide liquidity to founders and early investors without diluting other shareholders or changing the company's capitalisation.

Short-term funding used to bridge the gap between two financing rounds or before an anticipated liquidity event. Bridge loans or convertible notes are common structures, often provided by existing investors to sustain operations until the next milestone.

Contractual mechanisms that protect existing investors from the dilutive effects of a subsequent financing round at a lower valuation than the round in which they invested. Common forms include full ratchet anti-dilution (which adjusts the conversion price to the new lower price) and weighted average anti-dilution (which adjusts based on the relative size of the new round).

A block of shares reserved for future issuance to employees, advisors, and consultants as equity incentives. Option pools are typically established before fundraising rounds, and their size (usually 10%-20% of fully diluted equity) affects both valuation and founder dilution.

Flat, Up or Down: Bridge Valuation Mechanics

What is a co-sale right (tag-along right for shareholders)?

Co-sale rights allow shareholders to participate in a sale of the company on the same terms negotiated by majority shareholders, preventing discrimination against minorities.

What is a right of first refusal (ROFR) and how does it affect secondary sales?

ROFR gives the company or other shareholders the right to purchase shares before a shareholder can sell them to an external buyer, preserving cap table control.

What is a recap (recapitalisation) and why do founders propose them?

A recap allows founders and early investors to sell a portion of their shares to new investors without an exit, providing partial liquidity before the full company exits.