In this workout, we're gonna be looking at a scenario where a company has gone through a series A fundraising round, but then in the subsequent series B fundraising round, the share price associated with that series B is lower than the series A round, and as a result is referred to as a down round. We'll look at the various different ways in which there can be some anti-dilution protection for the series A investors through this down round in various different ways through these examples. So the scenario works that we had initially 6 million shares for the ordinary investors for the founders prior to the for initial series A round and then another 3 million shares of the series A round. We had that series A round raising 3 million, and as a result we can see a price of one per share. The series B down round raised 1.5 million, but was associated with 3.75 million shares being issued. So the price here was only 0.4 and lower than the series A round, and as a result, we have a down round. The scenario prior to the down round is that the founders had 6 million shares, series A investors had 3 million shares, and as a result, a two thirds one third split in ownership. The first scenario we're gonna look at is where we use the broad based weighted average calculation for our priced based adjustment for a anti-dilution adjustment. What we're saying here is that we need to apply a formula which takes the series A price and adjusts it for the fact that the series B shares are being issued at a lower price and as a result, effectively more shares per dollar invested in the company. The way this formula works is we need to take the price pride for the down round. That's our one, and then we need to multiply that by and open our brackets. The formula then says we need to take the current number of shares we have in the company. That's the 9 million, and add to this, how many shares would've been issued in the down round had the share price been the same? So we would've had a 1.5 million investment and we would've had $1 per share. So as a result, it would've resulted in another 1.5 million shares. We then need to divide all of this by the number of shares that we had previously, and then add to that the number of shares that are actually being created through this new down round.

What we get as a result of all of that complicated calculation is 0.824. What this is adjusting for is the fact that the new down round shares are issued at a lower price and therefore effectively more shares for the dollar amount invested compared to what it would've been. The C10 divided by C7 had this new series B been at the same price as the previous rounds. So what we're gonna do is we're gonna scale up the number of shares that the series A investors have effectively saying, Well, what if we had issued those shares? Not at the one per share, but at 0.82 per share. Our conversion ratio is going to be the issue price one divided by the conversion price, and this effectively is a factor now that says, how much have we got to multiply the original shares? How much have we got to multiply the number of shares the series A investors do have by to get to the anti-dilution adjustment. The founders don't get brought into this they just keep the 6 million shares. The series A investors do though they get their 3 million shares adjusted and multiplied by the conversion ratio to increase the number of shares that they have. This is our anti-dilution adjustment in practice, and then what we can see in terms of the percentage ownership that in the business that we have, this effectively dilutes the founder share ownership to give some protection to the series A in the event that they're performing badly because the company's not doing so well. So this effectively, as the founder saying, look, we'll give you a bit more if the company has a down round. What this then results in after the down round is that there are the 6 million shares for the founders. There are the not 3 million, but 3.642 million shares now for the series A investors and the 3.75 million shares for the series B investors to see that we then have further dilution of the founder's stake, but also dilution of what the series A investors had. The series a investors are not better off from this. They previously had a 33.3% stake. They do suffer from the down round, but this broad based protection gives them some degree of protection at the cost of the founders.