Ann: Capital Raise, page-23

@phantom8 The comment "you can always buy more to avoid dilution" is correct (to point) but it needs quite a degree of qualification
We need to wind back the philosophy here to "ground zero" - that is to the very beginnings of investing in a "start up".
This is where the fundamental difference between venture capital and a "listed" stock exchange start up needs to be thoroughly understood
Venture Capital structure allows "more capital to be put in" ..sure... but here is the crucial bit.
Only those who control the process (In this case the owners) put the extra capital in
They at all times maintain the exact same % holding in the venture.
Unless they decide to change that.
Lets say you hold 10% of VC Company A at the outset
You hold it for 10 years until it becomes profitable
You would logically expect 10% of the profits
Company A might need more capital along the way... sure.. but if only the owners are contributing to that capital, yr 10% reward of those profits remains in tact.
That situation is way way different to what we see in many small cap listed so called "start ups"
A shareholder does not get to control the way capital is put in
CR Rule 7.1 allows BODs to continue to raise capital year in yr out (in many which ways they like.). but here is the thing.. outside the shareholder base.
The problem for an early investor in such an enterprise is this:
There are strategies to buy in at a lower price after a CR to maintain that 10% ...sure... but what if there are other strategies that the outside investors have?
As a shareholder you don't have any control over that
You have no idea of their motives, short term (and certainly not long term)
You (in effect) have lost control of that 10% investment stake.
Nor due you have control over the way the capital is raised.
Or the rules of the game ie stock exchange in which that company is listed
The only control over that 10% potential you might have in the long run, is the power to withdraw - if you are unhappy about the process.
NA/IMO