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Structuring Down-Round Financing: Anti-Dilution Protections, Employee Considerations, Mitigating Board Conflicts

Recording of a 90-minute premium CLE video webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Tuesday, March 12, 2024

Recorded event now available

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This CLE course will analyze down-round financings from the vantage point of the company and its investors. The panel will discuss the implications of a down round for employees and existing stockholders, board fiduciary and process issues, and technical and structuring considerations.


The current economic environment has required many startups to seek down-round financing, in which the company has a reduced valuation from its prior financing round. Down rounds have important implications for employees and existing investors and can involve complex structuring concerns. Boards and controlling shareholders must consider any conflicts of interest and the risk of shareholder actions in response to such financing.

Stock options or other equity awards are important tools for retaining key personnel. Down-round financing reduces the value of employee stock awards and the prospects for a profitable exit. Boards may need to consider additional equity awards or a management carve-out plan to prevent key employees from departing.

Directors have a fiduciary duty to their shareholders and may have conflicts of interest, resulting in litigation from shareholders or creditors negatively impacted by the down round. To mitigate this risk, a board might consider the appointment of an independent committee to evaluate the proposed transaction, a disinterested stockholder vote, or a rights offering for existing shareholders.

Down-round financing may be further complicated by anti-dilution provisions in favor of preferred shareholders, which may allow them to receive a more favorable conversion rate and enhanced voting rights due to the new round of investment. Before proceeding, the parties will need to determine when a conversion occurs and how it will be documented.

Listen as our authoritative panel discusses these and other nuances of down-round financings.



  1. Down-round financing and its impact on existing investors
  2. Board fiduciary duties: mitigating risk of shareholder suits
    1. Independent committee
    2. Vote of disinterested shareholders
    3. Rights offering
  3. Addressing employees with devalued stock awards and options
  4. Structuring issues
    1. Anti-dilution protections
    2. Redemption rights
    3. Pay-to-play options


The panel will review these and other significant issues:

  • How might down-round financing affect existing employees who hold company stock?
  • Given the potential board conflicts inherent in down-round financing, what can the board do to mitigate against the risk of shareholder actions?
  • What are the different types of anti-dilution provisions, and how do they impact the financing structure?


Futter, Dror
Dror Futter


Mr. Futter specializes in advising startups, investors, and small to medium-sized companies, particularly in the...  |  Read More

Lee, James C.H.
James C.H. Lee

Proskauer Rose

Mr. Lee is a member of the firm’s Private Equity and Mergers & Acquisitions Groups. He has extensive...  |  Read More

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