Fundraising
Anti-dilution Protection
Quick definition
Mechanism that protects investors from down-round dilution by adjusting their conversion price.
Broad-based weighted average is the founder-friendly standard: it recalculates the conversion price using a weighted formula that accounts for both the new shares and existing fully diluted shares, giving a moderate dilution adjustment. Narrow-based weighted average is harsher (uses only outstanding common). Full ratchet is the most punitive: it resets the prior investor's conversion price to the new (lower) round price entirely, severely diluting founders. Push for broad-based weighted average.
Frequently asked questions
- What is Anti-dilution Protection?
- Broad-based weighted average is the founder-friendly standard: it recalculates the conversion price using a weighted formula that accounts for both the new shares and existing fully diluted shares, giving a moderate dilution adjustment. Narrow-based weighted average is harsher (uses only outstanding common). Full ratchet is the most punitive: it resets the prior investor's conversion price to the new (lower) round price entirely, severely diluting founders. Push for broad-based weighted average.
- Why is Anti-dilution Protection important for startups?
- Anti-dilution Protection is a fundraising concept that matters for startup founders because it shows up in fundraising readiness, financial decision-making, and operational discipline at the stage where mistakes are expensive to undo. Founders who understand it are better prepared for diligence, board meetings, and investor conversations.
- What category does Anti-dilution Protection belong to?
- Anti-dilution Protection is a Fundraising term in the StartupCFO finance glossary, alongside other fundraising concepts that founders, CFOs, and accountants use in startup operations and reporting.
- Where can I learn more about Anti-dilution Protection?
- Beyond this definition, see the related fundraising terms below, or explore StartupCFO's insights and tools that put Anti-dilution Protection in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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