The Fed provides downside protection and there is no effective limit on the amount or nature of risks that the private financial sector can take.
These securities have a variety of protections-such as liquidation preferences and voting rights-that provide VCs with downside protection and control.
It dumped $4.4 billion into Merrill last December at $48 per share, but a downside protection clause meant the firm would make money even if the stock plunged to $24.
It's the downside protection on an investment that VCs expect to have as a baseline of any equity investment.
Because it forces investors to get out of stocks as the market falls, investors enjoy some downside protection.
