Anti-Dilution Provisions: Full Ratchet vs Weighted Average
Written by Harry Prabandham
Curated by Rubric Financial
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What Anti-Dilution Provisions Do
- Anti-dilution provisions adjust the conversion price of preferred stock when the company issues new shares at a price lower than the previous round (a 'down round')
- The adjustment gives prior investors more shares than they originally purchased, compensating them for the decrease in the company's valuation
- Anti-dilution is standard in virtually all venture deals; the negotiation is about which formula is used to calculate the adjustment
- The two main types are full ratchet (aggressive, investor-friendly) and weighted average (standard, more balanced)
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About the author
Harry PrabandhamFounder & CEO
Founder and CEO of StartupCFO. MBA from Wharton, MS in Computer Science, and decades of experience building and advising venture-backed startups.
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