Educational estimates onlyNot financial or legal advice. Consult a startup attorney.
Anti-dilution provisions
Full ratchet vs weighted average
Model a down round and compare three anti-dilution mechanisms side by side. See exactly how much extra ownership the original investor claims and how much your founder stake takes the hit.
Form ED-5 / Down Round Anti-Dilution
Compare anti-dilution mechanisms
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| Mechanism | Founder % | Original investor % | New investor % |
|---|---|---|---|
No anti-dilution Rare in practice | 63.5% | 12.7% | 23.8% |
Broad-based weighted average Market standard | 62.3% | 14.4% | 23.4% |
Full ratchet Most punitive to founders | 54.8% | 24.7% | 20.5% |
No anti-dilution
Rare in practice
Investor takes the same proportional dilution as everyone else in the down round. Almost never agreed to outside angel rounds and friends-and-family deals.
Broad-based weighted average
Market standard
Conversion price adjusts using a formula: CP2 = CP1 x (A + B) / (A + C). A is fully diluted shares before the new issue, B is shares that would have been issued at the old price, C is shares actually issued at the new price.
Full ratchet
Most punitive
Conversion price drops to the new round price, regardless of size. A tiny down round triggers full repricing. Founders bear all the dilution. Push hard against this.
§FAQ
Anti-dilution FAQ
Anti-dilution provisions adjust an early investor's effective conversion price in a down round so they keep more ownership than the math would otherwise give them. Common in any priced round. The protection comes at founders' expense: extra shares are issued to the protected investor, diluting everyone else.