Anti-dilution

Anti-dilution clauses protect existing investors in a down round, when a company raises new capital at a price below the previous round. They work by adjusting the investor’s effective conversion price upward, which increases their share count and cushions the loss in value.

The aggressive version, full ratchet, reprices as if the investor had always paid the lower price. The more common weighted-average version adjusts in proportion to the size of the new round, which is gentler. Either way, the economic loss does not disappear. It shifts onto holders without the protection, usually the founders and the common pool.

Anti-dilution sits alongside the liquidation preference as a core term that drives a wedge between headline valuation and per-share value. See Liquidation Preferences and the Cap-Table Waterfall.