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Diligence & Terms

Anti-Dilution (Full-Ratchet vs Weighted-Average)

Down-round protection that reprices earlier investors' shares

What it is

Anti-dilution provisions protect earlier investors if the company later sells shares at a LOWER price than they paid (a "down round"). They work by retroactively lowering the price at which the earlier investor's preferred shares convert to common, effectively granting them more shares to compensate. There are two flavors that differ in how aggressive that adjustment is.

Why it matters

Anti-dilution decides who absorbs the pain of a down round, the protected investor or everyone else (founders and employees). The "full-ratchet" version can be brutally dilutive to founders, so which version a term sheet uses is a term worth fighting over.

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