Enter Values

Original Round (Series A)
$ M
Series A investment amount
$
Original conversion price
2,500,000 shares (calculated)
Down Round
$ M
New round investment
$
New round price (lower = down round)
Cap Table
Includes common, preferred, options, and pool
Weighted Average Formula
CP2 = CP1 x (A + B) / (A + C)
A = Pre-round FD shares | B = New $ / Old price | C = New $ / New price
Ryan O'Connell, CFA
Calculator by Ryan O'Connell, CFA

Antidilution Comparison

Full Ratchet Much Harsher
No Protection
Baseline
Full Ratchet
Investor-Friendly
Weighted Avg
Broad-Based
New Conversion Price
$2.0000
$1.0000
$1.7692
Additional Shares
0
2,500,000
326,087
Total Series A Shares
2,500,000
5,000,000
2,826,087
Series A Ownership
19.23%
31.25%
21.18%
Full Ratchet adds 2,173,913 more shares than Weighted Average, representing 7.7x more protection.

Formula Breakdown

Full Ratchet
New Price: = Down Round Price = $1.00
Additional Shares: = 2,500,000 x ($2.00 / $1.00 - 1) = 2,500,000
Weighted Average (Broad-Based)
A (Pre-round FD): = 10,000,000
B ($ at old price): = $3,000,000 / $2.00 = 1,500,000
C (actual new shares): = $3,000,000 / $1.00 = 3,000,000
New Price (CP2): = $2.00 x (10M + 1.5M) / (10M + 3M) = $1.7692
Additional Shares: = 2,500,000 x ($2.00 / $1.7692 - 1) = 326,087
Model Assumptions
  • This is a cap-table adjustment calculator after a down-round price is observed
  • Broad-based denominator uses fully diluted shares (common, preferred, options, pool)
  • Ownership shown on as-converted basis; liquidation preferences not modeled
  • Ignores pay-to-play, waiver mechanics, and excluded issuances
  • Single protected Series A round with 1:1 initial conversion ratio

For educational purposes. Not financial or legal advice. Actual term sheets vary.

Understanding Antidilution Protection

What is Antidilution Protection?

Antidilution protection is a term sheet provision that adjusts the conversion price of preferred stock when a company raises money at a lower valuation than a previous round (a "down round"). This protects early investors from having their ownership percentage diluted by granting them additional as-converted shares.

Full Ratchet vs Weighted Average

Full Ratchet

Resets conversion price to new price
Regardless of how much is raised in the down round, the protected investor's conversion price drops to match the new, lower price. Maximum protection for investors.

Weighted Average

Adjusts price proportionally
The new conversion price is weighted by how much money is raised relative to the existing cap table. More founder-friendly and the standard in modern term sheets.

When Does Antidilution Apply?

Antidilution protection only triggers when a company raises equity financing at a price per share lower than the protected investor's original price. If the company raises at a higher price (an "up round"), no adjustment is made.

Carve-Outs: Most term sheets exclude certain issuances from triggering antidilution, such as employee stock grants, acquisition-related shares, and some debt or warrant financings. Always review the actual legal documents.

Impact on Founders

Antidilution protection shifts ownership from common shareholders (founders, employees) to preferred shareholders (investors) in a down round. The choice between full ratchet and weighted average can make a significant difference:

  • Full Ratchet can be devastating for founders in even small down rounds
  • Weighted Average proportionally considers the size of the down round
  • Broad-based is more founder-friendly than narrow-based

Frequently Asked Questions

Antidilution protection is a term sheet provision that adjusts the conversion price of preferred stock when a company issues shares at a lower price than the previous round. This protects early investors from having their ownership percentage diluted in a down round by granting them additional as-converted shares.

Full ratchet is the most investor-friendly form of antidilution. It resets the conversion price to the new, lower price regardless of how much money is raised in the down round. This can result in significant additional as-converted shares for the protected investor, even for small down rounds. Full ratchet is relatively rare in modern term sheets due to its punitive impact on founders.

Weighted average antidilution adjusts the conversion price based on how much money is raised in the down round relative to the company's fully diluted share count. The formula is CP2 = CP1 x (A + B) / (A + C), where A is outstanding shares, B is hypothetical shares at old price, and C is actual new shares. It is less punitive to founders than full ratchet because the adjustment is proportional to the dilutive impact.

Broad-based weighted average includes all fully diluted shares (common, preferred as-converted, options, warrants, and often the unissued option pool) in the denominator, resulting in a smaller adjustment. Narrow-based only includes preferred shares, resulting in a larger adjustment. Broad-based is more founder-friendly and is the standard in modern term sheets per NVCA model documents.

Founders prefer weighted average because it results in less dilution in a down round. Full ratchet can transfer substantial ownership from founders to investors even for small down rounds, while weighted average proportionally considers the size and price of the down round relative to the existing cap table. For example, a small bridge round at a slight discount would barely affect weighted average but could be devastating under full ratchet.

Antidilution protection applies when a company raises equity at a lower price per share than the protected investor's original investment (a down round). However, many term sheets include carve-outs that exclude certain issuances: employee stock grants, acquisition-related shares, board-approved issuances, some debt or warrant financings, and SAFE/note conversions. The specific triggers vary by charter, so always review the actual legal documents.
Disclaimer

This calculator is for educational purposes only and provides simplified antidilution calculations. Actual term sheets involve additional complexity including pay-to-play provisions, carve-outs, and charter-specific definitions. This tool should be used for understanding concepts, not for making investment or legal decisions. Consult qualified legal and financial advisors for actual transactions.

Related Calculators

Professional finance illustration representing Cap Table & Dilution Calculator

Cap Table & Dilution Calculator

Track ownership changes across funding rounds.

Try Calculator →
Professional finance illustration representing Liquidation Preference Calculator: VC Payout Scenarios

Liquidation Preference Calculator: VC Payout Scenarios

Calculate investor vs founder payouts at different exit values.

Try Calculator →
Professional finance illustration representing SAFE Conversion Calculator: Cap vs Discount

SAFE Conversion Calculator: Cap vs Discount

Calculate SAFE conversion with cap and discount.

Try Calculator →