Full ratchet vs weighted average anti-dilution: what triggers it, how the math works, and why broad-based weighted average is the standard founders.
Anti-dilution protection kicks in only if you raise a down round. Most rounds never trigger it. The clause still matters because when it does trigger, the difference between full ratchet and weighted average is enormous.
If you raise a future round at a lower price than the existing preferred paid, anti-dilution retroactively adjusts the existing preferred's conversion price. Effectively they get more common shares for the same money — at the expense of common (founders and employees).
Existing preferred gets repriced to the new lower price regardless of round size. A $10M investment at $10/share repriced to $5/share doubles the investor's share count. Catastrophic for founders. Rare in modern term sheets outside distressed financings.
Repricing is weighted by round size relative to total shares outstanding. Small down rounds cause small adjustments. Formula considers all outstanding common + preferred + option pool. This is the market standard and what you should hold to.
Same formula but excludes options and reserved pool from the denominator. Adjustment is larger than broad-based but smaller than full ratchet. Push back to broad-based if you see this.
A clause that requires existing investors to participate pro-rata in the new round to keep their anti-dilution protection. Founder-friendly in down rounds — investors either put more capital in or lose the protection. Worth pushing for in the original term sheet.
Only priced rounds at a lower price per share than the previous round. SAFEs and notes don't trigger anti-dilution when they convert (though the conversion itself can be dilutive).
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