Glossary · Equity and dilution · Updated
An anti-dilution clause protects an investor against a fall in valuation at a later round. If the next round's price per share is below what they paid, they receive additional shares for free to compensate. Those shares come out of the founders' stake.
The clause only triggers in one case: a round at a lower price per share. While valuation rises it stays theoretical, which is why many founders sign it without much thought. It becomes decisive precisely when the company is struggling, when extra dilution hurts most.
Two variants exist and the gap between them is large. Full ratchet recalculates the investor's entry price entirely as if they had invested at the new price, whatever the size of the new round. Weighted average scales the compensation by the volume of shares issued, producing a partial, proportionate adjustment.
The European standard is weighted average broad-based, the most balanced variant, which includes options and convertibles in the weighting. A full ratchet at seed is an aggressive clause, usually signalling an unfavourable balance of power or a tight market.
Example: both variants on a reduced-price round
An investor subscribed 200,000 shares at €10 each. The next round is priced at €5 per share.
| Initial investment | €2,000,000 for 200,000 shares at €10 |
|---|---|
| New round price | €5 per share |
| Without anti-dilution | the investor keeps their 200,000 shares |
| Full ratchet: recalculated price | €5 per share |
| Full ratchet: total shares | €2,000,000 / €5 = 400,000 shares |
| Full ratchet: shares received for free | 200,000 |
| Weighted average: compensation | partial, scaled by the size of the new round |
| Who bears the cost | the founders, through additional dilution |
Under full ratchet the investor doubles their holding without adding a euro. Under weighted average the compensation stays proportionate to what was actually issued, which is why negotiating this single word is often worth several points of equity.
The common mistake
Negotiating hard on valuation and waving through the anti-dilution variant. Accepting a full ratchet in exchange for a 20% higher valuation is a bad trade as soon as the probability of a lower-priced round exceeds a few percent.
Frequently asked questions
What is the difference between full ratchet and weighted average?+
Full ratchet resets the investor's entry price to the new round's price regardless of that round's size. Weighted average scales the adjustment by the number of newly issued shares, producing partial compensation. The second is the European standard.
Who pays for an anti-dilution clause?+
Unprotected shareholders, meaning founders and option-holding employees. The extra shares given to the protected investor are newly issued, which mechanically dilutes everyone not covered by the clause.
Related terms
Prepare your raise with the right documents
Onefive brings the dataroom, the investor network and the startup profile into one workspace, built for European teams from pre-seed to Series A.
