What triggers anti-dilution?

Any issuance of new preferred shares at a price per share below the protected investor's original price.

How much does full ratchet cost founders?

On a 30% down round with $10M in ratchet-protected preferred, founders bear roughly 8-12% additional dilution vs. weighted average.

Can we negotiate anti-dilution out entirely?

Extremely rare. What's negotiable: the formula, carve-outs, pay-to-play requirements, and sunset provisions.

Anti-Dilution Explained: Weighted Average, Ratchet, Founder

Anti-dilution protection adjusts investor conversion ratios when future rounds price below prior rounds. Here's what's standard and what to reject.

Anti-Dilution Protection: Broad-Based Weighted Average

Anti-dilution provisions protect investors when a future round prices below the current round's price per share (a down round). They adjust the investor's conversion ratio to give them additional shares — always at founder and common shareholder expense.

Broad-based weighted average: the standard

Adjusts the investor's conversion price using a formula that accounts for the size of the down round and the size of the company's outstanding shares. Softens dilution without eliminating it.

Full ratchet: the aggressive form

Investor's conversion price adjusts down to the new round's price, regardless of round size. Massively dilutive. Only accept in distressed scenarios with a sunset provision.

Pay-to-play

Investors who don't participate in the down round lose their anti-dilution protection. Founder-friendly; increasingly common in 2025-2026.

Frequently asked questions

What triggers anti-dilution?: Any issuance of new preferred shares at a price per share below the protected investor's original price.
How much does full ratchet cost founders?: On a 30% down round with $10M in ratchet-protected preferred, founders bear roughly 8-12% additional dilution vs. weighted average.
Can we negotiate anti-dilution out entirely?: Extremely rare. What's negotiable: the formula, carve-outs, pay-to-play requirements, and sunset provisions.

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•By Alejandro Cremades