Core Viewpoint - The article emphasizes the critical importance of equity protection strategies to prevent founders from losing control over their companies due to excessive equity dilution during financing rounds [4][6][9]. Group 1: Real Case Studies - The case of Qiao Jiang Nan illustrates how the founder Zhang Lan lost control of the company due to continuous dilution of shares during multiple financing rounds, leading to stagnation in brand development [4][6]. - Similarly, the founder of NVC Lighting, Wu Changjiang, was ousted from his own company due to a lack of equity planning during financing, resulting in prolonged turmoil for the business [6][7]. - Another e-commerce platform founder saw their ownership drop from an initial 70% to just 12% after several financing rounds, highlighting the risks of inadequate equity protection [6][7]. Group 2: Core Issues in Case Analysis - Common issues identified in these cases include: 1. Lack of a clear equity protection strategy before financing, leading to inaccurate funding needs assessment and blind acceptance of financing terms [9]. 2. Absence of mechanisms to safeguard control rights, failing to lock in key decision-making powers through agreements or bylaws [9]. 3. No anti-dilution provisions in place, resulting in continuous share shrinkage during subsequent low-priced financing rounds [9]. Group 3: Legal Framework for Equity Protection - The foundational role of company bylaws includes establishing special voting rights mechanisms and defining founder veto rights on significant matters, providing a framework for equity protection [11]. - Shareholder agreements should explicitly include anti-dilution clauses to compensate existing shareholders when subsequent financing prices fall below previous rounds, as well as preemptive rights to allow original shareholders to maintain their ownership percentage [13]. - Timely completion of business registration for equity changes is crucial, as delays can lead to significant compensation liabilities and damage to reputation [15]. Group 4: Preventive Measures - Companies should clearly plan their financing strategies, prioritizing debt financing to minimize equity dilution and controlling the pace of financing to allow for adjustments in equity structure [17]. - Establishing a control structure through limited partnership arrangements can help maintain control over the holding platform and the company [19]. - Dynamic management of equity value through various valuation methods can mitigate dilution risks, alongside maintaining an option pool to balance incentive needs with equity protection [21]. Group 5: Importance of Legal Advisors - The core of equity protection lies in strategic rule management, where legal advisors can provide comprehensive support throughout the process [23]. - Legal advisors can help preemptively address equity dilution risks, create tailored equity structures and financing strategies, and ensure thorough review of key contracts to close legal loopholes [23]. - They also offer expertise in labor disputes, intellectual property protection, equity distribution optimization, business registration compliance, and exit mechanism design, safeguarding long-term equity security and development [23].