Tech IPOs Triggering More 'Ratchets' In Shaky Market

Law360, New York (January 27, 2016, 9:36 PM EST) -- A recent study shows that the percentage of initial public offerings in the technology sector that trigger so-called ratchet mechanisms, which lower the risks for late-stage investors, rose sharply in 2015, a trend attorneys expect to continue given worries about lofty private valuations and public market volatility.

In a report released Wednesday examining the effects of late-stage venture financing on IPOs, Silicon Valley law firm Fenwick & West LLP noted that the rate of technology offerings triggering ratchet mechanisms rose from 4 percent in 2014 to 50 percent in 2015.

Ratchets are negotiated agreements in which late-stage investors of a private...

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