Some of Square’s investors are catching a big break.
The payments startup, which publicly announced its S-1 filing for IPO yesterday, is going to take especially good care of late-stage backers including JPMorgan and Rivzi Traverse Management, according to the paperwork it submitted yesterday with the Securities and Exchange Commission.
If the IPO does not price at roughly $US18.56 a share or more, these two investors, which piled into Square’s Series E offering, will be due more stock. They invested in Square at a share price of about $US15.50 in late 2014.
This sort of financing is called ‘ratcheting,’ and it is catching on as more companies raise bigger rounds in order to stay private longer.
It’s not new; in fact investors are being granted additional protections in late-stage rounds in part thanks to the premium they are paying. In Silicon Valley, it has become increasingly common for big late-stage fundraisings to include guarantees to investors that, if missed, give them an opportunity to recoup some of their losses in the form of additional stock from the company.
When Box made its market debut, it had to issue additional stock to investors Coatue Management and TPG Capital after it missed the strike price the investors had agreed upon in their 2014 investment in the SaaS startup, according to a New York Times report. Other startups that have offered investors ratcheting protections include Lynda.com, which sold to LinkedIn earlier this year, according to the report.
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