Automatic Conversion Clause
A clause requiring convertible debt securities or convertible preference shares to be compulsorily converted into equity on a pre-defined trigger - such as a revenue threshold, a Pre-Series A round, or an IPO.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Cash BurnThe rate at which a start-up spends its cash — set against the money in the bank, it says how many months of runway are left before the next round has to close.
- CIV schemeA separate one-deal scheme of a Category I or II AIF through which accredited investors of that scheme co-invest alongside the fund in a single investee company, without a portfolio manager registration.
- Compliance Test ReportThe annual self-certification an AIF manager prepares in SEBI's prescribed format, testing the fund against the AIF Regulations and routed through the sponsor and trustee for comment.
- Customer Acquisition CostThe average cost of winning one new customer — read against customer lifetime value, it says whether a start-up is buying revenue at a profit or at a loss.
- Down roundA financing round priced below the valuation of the previous round — the event that triggers anti-dilution protection and re-prices every earlier investor's conversion.
- Full RatchetThe harshest anti-dilution formula: after a down round, the earlier investor's preference shares convert at the lowest price the company has issued at, as though it had invested at that price all along.
Where this is taught
Free preparation for NISM Series XIX-D← All terms