# Priced Rounds

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For technical documentation, see [PricedRound](https://docs.mezzanine.xyz/smart-contracts/source-code/core/pricedround)
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*Priced Rounds* are smart contracts that resemble Venture Capital Priced Rounds.  They are stand-alone contracts that are meant to be deployed and initialized by the *Equity Financing* module.  They are non-upgradeable contracts. &#x20;

An organization *must* issue shares to the Treasury before the shares can be used in a priced round.  Before shares can be issued, they must be *authorized* via shareholder governance, which will differ based on the organization's governance structure.

A priced round can be instantiated with any share class but will be typically created with Preferred Shares.  Investors should check *where* in the capital stack these preferred shares lie and their respective liquidation preference. &#x20;

A user must also determine eight key variables before opening a Priced Round:

1. The minimum raise
2. The target raise
3. The total shares for the round
4. The price per share
5. The denomination asset
6. An unlock duration, if desired
7. An unlock cliff, if desired
8. An initial unlock percentage, which will be the percentage of shares unlocked following the cliff for investors

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It is important to remember that the [*shares*](https://docs.mezzanine.xyz/protocol/capital-stack/share-classes) used in the *Priced Round* contract also include their own properties, such as:

1. Voting weight
2. Liquidation preference
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Out of these variables, five are immutable: the *denomination asset,* the *price per share,* the *unlock duration,* the *unlock cliff,* and the *initial unlock percentage.* &#x20;

The denomination asset is the token exchanged for shares, while the price per share is the *number* of the denomination assets that must be exchanged per share.  The denomination asset in the initial version of Mezzanine will be a stablecoin, since most business is denominated in dollars.  Tokens, such as ether or bitcoin, may be whitelisted as a denomination asset in the future. &#x20;

All investors in a priced round will be subject to the same unlock schedule, which is determined by the unlock duration, unlock cliff, and initial unlock percentage.  These variables are immutable.  The *unlock duration* is the amount of time that must pass before an investor can claim *all* of their owed shares.  The *unlock cliff* is the amount of time required to pass before an investor can claim *any partial* amount of their owed shares.  The *initial unlock percentage* is the percentage of shares owed that is claimable once the cliff has passed. &#x20;

Once opened, the organization's board, which are the signers of the treasury multi-signature wallet, can *set* investor allocations.  Two variables make up an investor's allocation:

1. The number of shares
2. The discount or premium to the price per share

From these, an investor's *nominal* allocation in terms of the denomination asset is calculable.  An investor's allocation can be changed at any time.&#x20;

Investors are *only able to invest* their allocated amounts: they are not able to invest lower or higher than their allocation.  For example, if Alice has been allocated 1,000 shares for a priced round, she cannot invest 100 shares.  If an investor wants to change their allocated amount, they must contact the respective organization's board of directors.

Frontrunning checks have been put in place to prevent a malicious organization from exploiting an investor by increasing their premium or number of allocated shares. &#x20;

There are four different *states* that a Priced Round can be in:

* **Open:** The round has been initialized (i.e. opened) and the total raised has not reached the target raise. While the round is still open, investors can choose to revoke their investment, which returns their contribution with no penalty.
* **Closed:** The company closes the round, which transfers the priced round contract's holdings of the denomination asset to the organization's treasury.  Investors can claim their owed shares, and the difference between the total shares for the round and the *allotted shares*, which is the current amount of shares owed to investors who have contributed to the round, is burned.  A round cannot be reopened or canceled once it is closed. &#x20;
* **Filled:** The total raised equals the target raised.  At this point, no further contributions can be made to the round unless investors revoke their commitments or the round is *extended*. The round does not close automatically once filled, this must be completed by the board of directors. While the round is filled, investors can choose to revoke their investment with no penalty. &#x20;
* **Canceled:** The company cancels the round, which burns all shares in the contract and enables investors to recoup their investment.  A round cannot be reopened or closed once it is canceled

When a round is *closed* or *canceled*, its state cannot be changed. However, a round can go from *filled* to *open* if the round is *extended* or an investor revokes their investment.&#x20;

From the above, it is evident that an organization should be generous in setting the number of shares for the round unless they are targeting a certain dilution. If the total number of shares allocated to the contract exceeds the allotted shares, the difference will be burned when the round is closed.  If a round is canceled, all shares will be burned. &#x20;

It is **highly suggested** that the total number of shares allocated for the round *is at least* enough to hit the company's target raise.  Assuming no discounts or premiums in the round, the minimum number of shares to hit the target raise will be *the target raise divided by the price per share*.

Investors have two limitations on whether they can invest despite their allocations:&#x20;

1. If the sum of their *nominal* allocation and the *current* total amount raised exceeds the target raise, they cannot invest
2. If the sum of the *allotted* *shares*, which is the amount of shares owed to investors who have contributed, and the investor's *allocated* shares exceeds the total shares for the round, they cannot invest

Under these circumstances, the investor should reach out to the organization to either extend the round or change their respective allocation. &#x20;

Claiming shares is different *based* on whether or not an unlock schedule has been set.  If no unlock schedule has been set, shares will be *directly* transferred to the investor.  Conversely, the shares will be distributed to the company's *Token Timelock,* which is a smart contract that handles vesting and unlocks of company shares.  The investor then will receive an NFT, through which they can claim their shares according to the unlock schedule.  These NFTs *are* transferable.  All vested shares will go to the *owner* of the NFT, who will initially be the investor.  However, the investor will have the technical capability to sell or transfer their vesting shares, by selling or transferring this NFT, respectively. &#x20;

Mezzanine charges *no fees* for priced rounds.