Definition
A clause protecting investors from getting screwed when a company raises money at a lower valuation, automatically giving them more shares to maintain their investment value. Founders hate it; investors demand it.
Example Usage
The anti-dilution protection kicked in during the down round, giving our Series A investors an extra 5% of the company and diluting the founders into oblivion.
Origin
Corporate finance mechanism codified in venture capital term sheets during the 1970s
Fun Fact
There are two flavors: 'full ratchet' (brutal) and 'weighted average' (civilized)—the difference can cost founders 10-20% of their company.
Source: NVCA model term sheets and securities law documentation
Related Terms
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See “anti-dilution protection” in Corporate Speak, Gen-Z Slang, Pirate Speak, and more.
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