What is Weighted-Average Anti-Dilution?
The market-standard down-round protection: an investor's price adjusts in proportion to how much cheaper stock was actually issued.
Weighted-average anti-dilution softens the blow of a down round by adjusting an earlier investor's conversion price using a formula that weighs both the lower price AND the number of new shares issued at it. A small down-priced issuance moves the price only a little; a large one moves it more. The 'broad-based' version (the founder-friendlier and most common) counts the fully-diluted share base in the formula, which dampens the adjustment further. Why it matters to you: this is the protection you want investors to have instead of full ratchet. It's fair - it scales with real dilution rather than punishing the common holders for any down-priced share at all. When you see anti-dilution in a term sheet, confirm it's broad-based weighted average.
Example
- After a modest down round, a broad-based weighted-average adjustment moves an investor's conversion price from $2.00 to about $1.85 - a far gentler reset than full ratchet's drop to the new price.