Pre-emption rights on new share issues
If the company makes any future share offering, a venture capital investor will require the right to maintain at least its percentage stake in the company by participating in the new offering up to the amount of its pro rata holding, under the same terms and conditions as other participating investors. This pre-emption right is automatically provided for by law in the UK and most Continental European jurisdictions, although it can be waived.
If the new offering is based on a company valuation lower than that used for an investor’s prior investment, that investor may also receive shares under its anti-dilution rights (see Anti-dilution (or price protection)). Certain issues will usually be exempted from the pre-emption rights, including the issue of anti-dilution shares and the issue of shares on the exercise of share options.
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