Anti-dilution

A provision protecting earlier investors if a later round is priced lower, by adjusting their conversion price.

Example

Broad-based weighted average — the common, founder-friendlier form.

Important

Full ratchet anti-dilution is severe and can wipe out founder ownership in a down round. Know which form is in your term sheet.

Related terms

• Down round — Raising at a lower valuation than your previous round.
• Term sheet — A short, mostly non-binding document setting out the main terms of an investment before the full legal documents are drafted.
• Preferred stock — The share class investors typically receive, carrying rights common shares do not — liquidation preference, anti-dilution and often a board seat.

Lessons that explain it

• Reading a term sheet — Two to four pages that decide the next several years. What each clause means and which ones actually matter. (15 min)

All 176 terms in the Founder glossary