Deal Terms
Anti-Dilution
A contractual protection for investors that adjusts their ownership percentage (or conversion price) if the company later raises money at a lower valuation.
Anti-dilution provisions protect investors from the value erosion that occurs when a company issues new shares at a price lower than what the investor originally paid — known as a down round. The protection works by adjusting the investor's conversion price downward, effectively giving them more shares to compensate.
There are two main types: full ratchet, which is the most aggressive and adjusts the conversion price all the way down to the new round's price, and weighted average, which is more common and more founder-friendly, calculating a blended conversion price based on the number of shares issued at the lower price relative to total shares outstanding.
In Practice
A Series A investor paid $2 per share. The company later raises a down round at $1 per share. With weighted average anti-dilution, the investor's conversion price adjusts to roughly $1.50 — they get more shares than originally issued, partially compensating for the valuation drop.
Why It Matters
Anti-dilution is one of the most consequential terms in a VC term sheet. In a down round, full ratchet anti-dilution can be devastating for founders and employees — significantly concentrating ownership among protected investors. Weighted average is the market standard and strikes a fairer balance.