The Honest Company is reportedly preparing for an initial public offering in the face of a tumultuous public market. But even if the IPO struggles, many of the retailer’s investors would be cushioned against losses. That’s because they have so-called “ratchet” protections that grant them more shares to make up for drops in share price, according to a review of its restated certificate of incorporation.
The IPO protections received by the most recent Honest Co. investors are not as aggressive as those granted to late investors in Square or Box, but more classes of Honest investors received the protections. For example, if the company were to go public at half of its $1.7 billion private valuation, most preferred shareholders would still be showing a considerable profit at the time of IPO, and none would lose more than 26%. (For more private tech deal terms, see The Information’s Private Tech Database.)