anti-dilution provisions

Definition

Protective clauses that let early investors maintain their ownership percentage when future rounds price lower, punishing founders for failing to maintain perpetual hockey stick growth. Comes in weighted-average and full-ratchet flavors of pain.

Example Usage

Our Series A investors have anti-dilution provisions, so the down round means I went from owning 30% to owning enough for a nice dinner.

Origin

Corporate finance mechanism formalized in venture capital during the 1980s

Fun Fact

Full-ratchet anti-dilution is so punishing that most lawyers advise against it, yet desperate founders still agree to it when capital is scarce.

Source: Venture capital term sheet provisions

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