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Anti-Dilution Provisions

Anti-Dilution Provisions

Anti-dilution provisions are the preferred-stock rights that adjust a series' conversion price downward if the company later issues stock at a lower price. They protect investors from being economically diluted by down rounds, with two main structural flavors: weighted-average (founder-friendly) and full-ratchet (punitive). It is one of the most economically significant terms in the preferred stock package, and the choice between flavors materially affects founder and common-holder outcomes when the company has to raise at a lower price.

The two structural flavors:

  • Broad-based weighted-average (modern standard, founder-friendly): the conversion price adjusts based on a formula that weights the size of the down-roun...

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