Deal Terms
Last updated
Quick Answer
The most aggressive anti-dilution provision — resets an investor's conversion price to match any lower future round price, regardless of how many shares are issued.
Full ratchet anti-dilution means if a company raises a down round, early investors' shares convert to common at the new lower price — giving them more shares regardless of how many new shares are issued. Unlike weighted average anti-dilution (standard), full ratchet ignores deal size, making it extremely punishing.
Example: Investor buys at $10/share. Company raises down round at $1/share. Full ratchet resets conversion price to $1, giving investor 10x more shares — massively diluting founders and employees.
In Practice
In the dot-com bust, startups with full ratchet provisions that needed bridge rounds at lower valuations saw investors receive 80-90% of the company through conversion. Founders and employees were left with nearly nothing despite years of work.
What good looks like
Why It Matters
Full ratchet provisions are a major red flag in term sheets. Most sophisticated founders negotiate it out entirely, accepting only weighted average anti-dilution as the standard.
VC Beast Take
Never accept full ratchet anti-dilution. It's one of the most founder-hostile provisions in venture. Standard market terms use broad-based weighted average anti-dilution, which is far more balanced. Any investor insisting on full ratchet is a red flag worth taking seriously.
50+ Venture Capital Interview Questions by Role (With Sample Answers)
Preparing for a VC interview? Here are 50+ real questions organized by role — Analyst through GP — with sample answer frameworks from people who've been on both sides of the table.
VC Term Sheet Template & Guide: Every Clause Explained with Examples
A clause-by-clause breakdown of every standard VC term sheet provision — what each term means, what's market, what to negotiate, and the red flags that cost founders millions.
How to Calculate Dilution: The Founder's Equity Formula
Every funding round dilutes your ownership. Learn how to calculate dilution, model cap table scenarios, and understand what post-money ownership actually means for founders.
What Happens During a Down Round: A Step-by-Step Breakdown
A down round isn't just a bad headline — it's a complex legal and financial event with real consequences for founders, employees, and investors. Here's exactly what happens, step by step.
How to Write an Investment Memo: The VC Template That Actually Works
A practical, partner-ready guide to writing VC investment memos that actually drive decisions: structure, examples, common mistakes, and how top firms like Sequoia, a16z, and Benchmark do it.
NVCA Model Legal Documents: Every Form a Startup Founder Needs
The NVCA publishes free legal templates that can save you $10-30K in lawyer fees. Here's every document explained in plain English, plus what to watch for.
How to Negotiate a VC Term Sheet: A Founder's Leverage Guide
A founder's guide to negotiating VC term sheets: leverage mechanics, which terms actually matter, specific tactics, and real scenarios with concrete playbooks.
How to Read a Term Sheet: Line-by-Line Guide for Founders
Every major term sheet clause decoded: liquidation preference, board composition, anti-dilution, vesting, protective provisions, and more. With a negotiation priority list at the end.
Understanding Startup Equity and Dilution: A Complete Guide
How equity actually works, what dilution really means, and what founders take home in different exit scenarios. Real math, worked examples, no hand-waving.
What is a down round?
A down round is a funding round where a company raises capital at a lower valuation than its previous round. It dilutes existing shareholders and triggers anti-dilution provisions for preferred investors.
What is a term sheet in venture capital?
A term sheet is a non-binding document outlining the key terms and conditions of a proposed investment, serving as the basis for negotiating a final deal.
What is a term sheet?
A term sheet is a non-binding document that outlines the key terms of a proposed investment — valuation, amount, ownership percentage, and governance rights. It's the starting point for negotiating a deal.
What is anti-dilution protection in venture capital?
Anti-dilution protection adjusts an investor's share price downward if the company later raises money at a lower valuation, protecting the investor from being diluted by a down round.
Full ratchet anti-dilution means if a company raises a down round, early investors' shares convert to common at the new lower price — giving them more shares regardless of how many new shares are issued.
Understanding Full Ratchet is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Full Ratchet falls under the deal-terms category in venture capital. This area covers concepts related to the financial and legal terms that define investment agreements.
Newsletter
Fund operations, one problem a week — plus benchmarks from 75,000+ SEC filings. Every Tuesday.
The VC Beast Brief
The weekly brief for emerging managers and founders
Weekly intelligence on fundraising, VC strategy, and the signals that matter. Every Tuesday, free.
Archstone
Run your fund like an institution.