Question 1

What's the difference between full ratchet and weighted average anti-dilution?

Accepted Answer

Full ratchet adjusts your price per share down to match the new, lower price — regardless of how many shares are issued. Weighted average is gentler: it factors in how many shares are sold at the lower price. Most investors push for full ratchet; most founders negotiate for weighted average. About 90% of venture deals use weighted average.

Question 2

Do anti-dilution clauses apply to founders?

Accepted Answer

Rarely. Anti-dilution protections are almost always reserved for preferred shareholders (investors), not common shareholders (founders). As a founder, your shares get diluted with each new round. That's just how startup financing works. If you're offered anti-dilution as a founder, it's unusual — and valuable.

Question 3

What happens if a company doesn't have anti-dilution provisions?

Accepted Answer

Your ownership percentage drops proportionally when new shares are issued. If you own 10% and the company doubles its outstanding shares, you now own 5%. Without anti-dilution protection, there's no mechanism to compensate you for that dilution, even if the new shares were sold at a bargain price.

Question 4

Are anti-dilution clauses enforceable?

Accepted Answer

Yes. They're standard contractual provisions, and courts enforce them as written. The key is having them in your stock purchase agreement or shareholders' agreement. Verbal promises about anti-dilution protection won't hold up — get it in the signed documents.

Question 5

When does anti-dilution protection kick in?

Accepted Answer

It triggers during a 'down round' — when the company issues new shares at a price lower than what you paid. It doesn't activate during up rounds (higher price) or flat rounds (same price). Some agreements also include exceptions for employee stock options and other specific issuances.

Anti-Dilution

Definition

In Practice

Common in these contract types

Frequently asked questions about anti-dilution

Create a contract with proper anti-dilution clauses