Deal Terms
Full Ratchet
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.
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.