Deal Terms
Full Ratchet
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.
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.
Further Reading
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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.
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.
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.
Down Rounds: How to Navigate Them Without Destroying Your Company
Down rounds are painful but survivable. Learn how to negotiate terms, protect your equity, manage dilution, and keep your team intact when raising at a lower valuation.
Frequently Asked Questions
What is Full Ratchet in venture capital?
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.
Why is Full Ratchet important for startups?
Understanding Full Ratchet is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Full Ratchet fall under in VC?
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.
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