Anti-dilution protection

How it works

Two common forms: full ratchet (resets the investor's share price to the new lower price — very investor-friendly) and weighted average (adjusts based on the size of the down round and how much new money is raised — the market standard). Anti-dilution is triggered only on down rounds, not on every new financing.

Related terms

• Liquidation preference
  A liquidation preference is the right of preferred shareholders to get their money back (often a multiple of it) before common shareholders see anything in a sale or liquidation.
• Term sheet
  A term sheet is a non-binding document outlining the key terms of a proposed investment — valuation, amount, board seats, liquidation preference, anti-dilution, and other rights.
• Dilution
  Dilution is the reduction in an existing shareholder's ownership percentage that happens when a company issues new shares — typically when raising a new round.