Intrinsic Value

Mergers are like marriages in that both companies agree to the union, and both give up a certain amount of control and independence to become a new institution. After a merger, the newly combined entity takes on a new name and issues new stock in that name. Typically, mergers occur between companies of roughly equal size. Acquisitions, as the name suggests, are an outright purchase of one company by another, usually a larger company. Even the language surrounding acquisitions is more aggressive — the company being purchased is referred to as the “target company.” If the acquiring company buys 51% or more of the target company’s stock, it can assume control whether the target company likes it or not, in which case the acquisition is called a “hostile takeover.”

A venture capitalist (VC) is an investor who provides private financing to a company in exchange for an equity stake (typically 15% to 45% of the company). VCs normally invest in startups or small companies that are seeking to expand, though some venture capitalists invest in more mature companies.

A full ratchet anti-dilution provision, often referred to simply as a full ratchet, is a mechanism by which the ownership stake of an investor in a company is protected from being diluted by the issuance of additional shares in later rounds of financing.