full ratchet

Definition

The most aggressive anti-dilution protection where early investors' conversion price adjusts to match a down round price, regardless of how small the down round is. Financial punishment for daring to need more money.

Example Usage

The seed investors had full ratchet protection, so when we raised Series A at a lower valuation, their ownership percentage doubled while the founders got crushed.

Origin

Engineering term meaning complete mechanical adjustment, adopted by corporate finance

Fun Fact

Full ratchet provisions are so harsh they're considered a red flag—most sophisticated investors prefer weighted-average anti-dilution instead.

Source: Venture capital term sheet structures and corporate finance

Related Terms

Beginner

innovative

The adjective slapped on every product, service, and startup pitch deck to signal 'we're doing something allegedly new.' Something innovative is supposed to be groundbreaking and forward-thinking, though these days it often means 'we added AI to it.' If your company isn't innovative, you're basically admitting you're stuck in 2005 with a flip phone.

🚀 Startup / VC

Advanced

down dilution

The reduction in ownership percentage when additional shares are issued, especially painful in a down round where new shares are issued at a lower price. Watching your equity stake shrink while your company's value simultaneously decreases.

🚀 Startup / VC

Intermediate

priced round

A funding round where the company's valuation is explicitly set and shares have a specific price—as opposed to convertible instruments where everyone kicks the valuation can down the road. Forces uncomfortable conversations about what the company is actually worth.

🚀 Startup / VC

Intermediate

Pre-Seed

The earliest stage of startup funding, which is a polite way of saying you're raising money based on nothing but a dream, a napkin sketch, and the audacity of a person who has never run a business. It's called pre-seed because the seed hasn't even been planted yet -- you're basically fundraising with dirt.

🚀 Startup / VC

Advanced

distribution waterfall

The specific order in which investment proceeds are distributed among LPs and GPs based on the fund's legal agreements. It's the pecking order that determines who eats first at the exit feast.

🚀 Startup / VC

Advanced

halo effect round

A funding round that attracts investors primarily because a prestigious VC or strategic investor has already committed, rather than on the company's standalone merits. One famous name creates a stampede of followers.

🚀 Startup / VC

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