Deal Terms
Broad-Based Weighted Average
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.
Further Reading
How to Negotiate a Term Sheet as a First-Time Founder
Your first term sheet is exciting and terrifying. Know what's negotiable, what's standard, and the practical tactics for pushing back on liquidation preferences, board seats, and protective provisions.
What Founders Get Wrong About Valuation
A high valuation feels like winning. It's often a trap. Learn why the "right" valuation matters more than the highest one, and how vanity metrics can set you up for a painful down round.
Startup Equity: What Founders Don't Understand Until It's Too Late
Most founders think equity is simple: you own X%. But option pools, liquidation preferences, and preferred stock can quietly eat your returns. Here's what actually happens.
What a Series A Process Actually Looks Like
The Series A is where fundraising gets real — partner meetings, deep diligence, and term sheet negotiations. Here's a realistic week-by-week breakdown of what to expect.
How to Negotiate Your Term Sheet: A Founder's Playbook
A tactical guide to negotiating your startup term sheet — which terms matter most, where to push back, and how to protect your interests without killing the deal.
How to Read a Term Sheet: A Practical Breakdown
Term sheets aren't designed to be readable. Here's a section-by-section guide to what matters, what's standard, and what should make you walk away.
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