How do you deal with dilution and anti-dilution clauses when issuing new shares to investors?

Dilution hits the entrepreneur and founder, the fire-starters of a business regularly. Try issuing class B or preference shares instead. You may have to give a fixed return or dividend but they do not have voting rights like A shares.

Perhaps we can look at this another way, and find perspective? As a founder, you have two things that you can sell: your product or service (which requires money to launch), and the shares in your venture. Each have value, and that value changes over time. Different people will put different values on each of them at those times. I would urge founders not to worry unduly about dilution early on, but to ensure that they execute efficiently on the cash they raise. This has a much bigger effect on their eventual exit. I do urge founders to be extremely wary of later rounds, and the delusion that comes with them because of the extremely powerful effect of liquidation preferences, conversion rights, and the risk of down rounds.

Therefore issue class B shares to your investors guaranteeing a return but not additional voting rights or control. Once you give up control there is no way back

I would only issue Class B or special class shares, not to bother with anti-dilusion clauses.. if the investor is in for investment that should be acceptable, but if they are after buying control of a brilliant idea then it should be ohh-no-no

UK founders face a different environment for investors, and different legal & tax structure. Any antidilution rights can seen as “preferential” (please check with your lawyer, because this is extremely complicated), they have a profound impact on the available tax relief is for investors. This is a good reason to issue a substantial amount of SEIS/EIS equity early on, as you can use it (and you’re early investors) to push back against antidilution closes from later investors. Fundamentally, the opening line that nobody gets antidilution clauses in the UK unless they are massively overdelivering and bringing something much more than cash.

And don't forget to review the terms of any existing agreements or contracts that may be affected by the issuance of new shares, such as loan agreements or shareholder agreements. Then, you should communicate clearly with all parties involved to ensure that everyone understands the terms and implications of the new share issuance.

It can be instructive to have a look at tables of successful exits at ￡50 million and above in the UK, up to unicorn level (￡1 billion). What we tend to see is 3 to 7 rounds of investment over 5 to 8 years. Founders exit with something under 10% of the company on average. Still makes them extraordinarily wealthy and happy. It is not often true that they could have had 100% of the exit value: the money did an awful lot of heavy lifting, and deserves to be rewarded. This discussion can help set expectations on both sides.