GlossaryDeals

What is anti-dilution protection?

Anti-dilution protection lets preferred investors convert into more shares if a later round is priced below what they paid.

In practice

The two main forms are full ratchet, which resets the price to the new round’s, and weighted average, which adjusts it by how much was raised at the lower price. Full ratchet is rare and weighted average is far more common. The extra shares come at the expense of holders without the protection.

An example

Round numbers, not a real fund

Say an investor buys a million shares at $10 and the next round is at $5. Under a full ratchet, the $10 million converts into two million shares.

Why it matters

It shifts the cost of a down round from those investors onto founders and other common holders.

Video

41 seconds, with sound

A definition, not advice; where usage varies the entry says so.

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