What is Full-Ratchet Anti-Dilution?
The harshest anti-dilution: in a down round, the investor's conversion price drops all the way to the new, lower price.
Full-ratchet anti-dilution repricing resets an earlier investor's effective price per share to whatever the company sells at in a later down round - no matter how few shares are issued at the lower price. Even a tiny down-priced issuance can dramatically increase the protected investor's share count, transferring ownership from founders and employees to that investor. It's the most aggressive form of anti-dilution and is rare in founder-friendly deals. Why it matters to you: full-ratchet can devastate the common cap table after a single down round. The market-standard alternative is broad-based weighted-average anti-dilution, which adjusts the price only in proportion to how much dilutive stock was actually issued. Resist full-ratchet and push for weighted average.
Example
- An investor bought in at $2.00/share with full ratchet. A later round prices at $1.00, so their conversion price resets to $1.00 - roughly doubling their shares regardless of round size.