Buy Unlisted Shares

One of the biggest challenges in buying unlisted shares of VC funded companies – is the anti-dilution clause.

So, in case of Pharmeasy, it was reported that in the last funding round which valued Pharmeasy at $4B, Dr. Velumani (Thyrocare) invested 1500 cr for a 5% stake, and speculation is that he had anti-dilution clause. So assuming that he was allocated shares at Rs. 50 per share – he owned 30cr shares.
Now, assuming that the anti-dilution kicks in for this new round which is reported to be at a 90% discount (Rs. 5 per share), he is to be awarded a total of 1500cr/5, i.e. 300 cr shares or 270cr incremental shares.

Now, we do not know if any of the other investors had such an anti-dilution clause – most likely they would, but the damage may not be as bad as above, because they would have invested at a lower valuation.

How does all of this impact the retail investor?
So, while assessing this new investment round of Rs. 2,500 cr at a reported value of Rs. 5 per share, one would draw a conclusion that 500cr new shares are being issued, but if one truly accounts the anti-dilutive clause, it would mean 100’s of crores of new shares being added. Further, the commentary on this new round states that the board is issuing additional shares to founders and current employees (they will have to do that for motivation sake).

At the end, all of these new shares are going to dilute your holding significantly

Note: This new round seems to be structured as a rights-issue. Experts here can point out if the anti-dilution clause would be triggered for a rights-issue transaction or not.