Deal Terms
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Quick Answer
The most common and founder-friendly anti-dilution formula that accounts for the size of the down round relative to total shares outstanding.
Broad-based weighted average anti-dilution is a formula that adjusts the conversion price of preferred stock in a down round by considering both the new lower price and the number of new shares issued relative to the total capitalization. Unlike narrow-based weighted average (which only counts preferred shares) or full ratchet (which ignores proportionality entirely), the broad-based formula includes all outstanding shares — common, preferred, and option pool — in the calculation.
In Practice
With broad-based weighted average anti-dilution, the Series A conversion price dropped from $10 to $8.50 in the down round — a meaningful but manageable adjustment compared to the $5 it would have been under a full ratchet provision.
Why It Matters
Broad-based weighted average is the market standard and the version founders should insist on. It provides fair downside protection for investors while preventing the devastating dilution that full ratchet can cause to common shareholders.
VC Beast Take
If an investor pushes for narrow-based weighted average or full ratchet, it's usually a sign they're either unsophisticated or overly aggressive. Most institutional VCs default to broad-based weighted average without negotiation.
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Broad-based weighted average anti-dilution is a formula that adjusts the conversion price of preferred stock in a down round by considering both the new lower price and the number of new shares issued relative to the total capitalization.
Understanding Broad-Based Weighted Average is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Broad-Based Weighted Average falls under the deal-terms category in venture capital. This area covers concepts related to the financial and legal terms that define investment agreements.
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