Self-driving car developer Zoox made a splash on Tuesday when it announced it raised a big round of funding at a valuation of $3.2 billion. But there is more to the deal than that eye-popping price. Investors in the new round, which include Atlassian Co-CEO Mike Cannon Brookes and Fred Hu of China-based Primavera Capital, received special protections that make it less likely that they will lose their money in an IPO or a sale of the company, according to The Information’s analysis of a public document provided by research firm Lagniappe Labs.
The provisions include a relatively rare IPO protection widely known as a “ratchet,“ in which the new Series B investors would receive extra shares to fully make up for any drop if Zoox goes public at a share price lower than what they paid. And in a sale of the company, the new investors would receive their money back first before previous shareholders. Series B investors also received two board seats. As things stand now, as long as the company sells for about $500 million or goes public at any price, investors in the round wouldn’t see a loss. Such protections can come at the cost of other shareholders, and often suggest that investors have negotiating leverage over the company or are less willing to pay a high price without some guarantees.