In the tech IPO market, investors are also gaining the upper hand, increasingly calling for more protections on their investments, such as the ratchet that required Square to distribute additional shares to late-stage investors, to give them the minimum 20 percent return it had promised.
Protections have long been used, but in the last six months - as concerns over valuations have grown, exacerbated by the stock market tumbling in August - they have become more creative and more common, said analysts.
Max Wolff of Manhattan Venture Partners said financing deals now include more intricate structures, including extensive guarantee return provisions and discounted access to future rounds, inspired by hedge funds’ practices. They are becoming the norm in venture capital deals.
“Investors are saying: ‘You the company can take your half-reasonable valuation, if I can pick my structure’,” he said.