European venture capital players are noting that anti-dilution clauses are playing havoc on negotiations for subsequent investment rounds. The clause, only usually found where a US investment bank or venture capital firm is a previous backer of a company it is after all a US import , is making further finance difficult to obtain.
If the original investors do not accept dilution it’s unlikely that new investors will be attracted to what essentially amounts to an overpriced deal in an already difficult market. But if the original investors do agree to waive an anti-dilution clause the effect of the dilution can mean that the management is diluted beyond being meaningfully incentivised.
If this happens the firms seeking to invest in the subsequent round are faced with a management team that is not financially incentivised in tandem with the company’s performance. And this in turn is not an attractive investment proposition for an investor.
Presumably the amounts of money at stake, taken in the context of existing investors other portfolio difficulties and monies those investors have available to remedy the problems, plus the extent of the prospects of the investee company will ultimately decide the company’s fate.