Anti-dilution defense simulator for your first term sheet

What is the difference between full ratchet and weighted average anti-dilution?

Full ratchet reprices the investor's entire stake to the new, lower share price, no matter how little stock was sold. Broad-based weighted average lowers it only in proportion to how much cheap stock was actually issued, so founders give up far less.

• Full ratchet ignores size. Sell a single share below the investor's price and their whole position reprices to it. On a $10M-to-$5M down round that hands them double the shares and takes roughly seven points off the founders.
• Broad-based weighted average is proportional. It weighs the cheap shares against the entire fully diluted base, so a small round moves the conversion price only slightly — a little over one point of founder equity on the same numbers.
• Neither clause fires on a flat or up round. Anti-dilution is downside protection: if the new price is at or above what the investor paid, the conversion price does not move and the provision costs founders nothing.

The mechanism both clauses share

Neither provision hands anyone new stock directly. Both work by lowering the conversion price at which the earlier investor's preferred stock converts into common. Their money bought a fixed dollar amount; a lower conversion price means that same dollar amount buys more shares. The extra shares are created out of the company, which means out of everyone who does not have the same protection — founders, employees, and the option pool.

That is why the fight in a term-sheet negotiation is never about whether anti-dilution exists. It nearly always does. The fight is over which formula, and over what counts in the share base. Broad-based weighted average counts the whole fully diluted capitalisation including options, which dampens the adjustment. Narrow-basedexcludes the pool, which sharpens it in the investor's favour. This simulator models the broad-based form, the market standard.

How this simulator calculates, and what it is not

Share prices come from valuation divided by fully diluted shares, which is where a term-sheet model starts. Full ratchet sets the conversion price to the new round price. Broad-based weighted average applies the standard formula CP2 = CP1 × (A + B) ÷ (A + C), where A is the fully diluted share count before the new issue, B is the shares the new money would have bought at the old price, and C is the shares it actually bought. Both results are capped at the original conversion price, because anti-dilution never adjusts upward on a flat or up round.

What it deliberately leaves out: pay-to-play and pull-up provisions, multiple stacked preferred series each with their own conversion price, narrow-based variants, participating preferred and liquidation preference, carve-outs for option-pool issuances and conversions, and any effect on voting or protective provisions. Real cap tables have several of these interacting at once.

This models standard contractual anti-dilution mechanics for illustration. It is not legal advice on any specific term sheet, and the wording in your documents controls — definitions of “fully diluted” and the list of excluded issuances routinely change the outcome. Have counsel review the actual language before finalising terms.

For an independent primer on how these provisions are drafted and negotiated, the NVCA model financing documents contain the standard anti-dilution language this tool models.

Where this fits

Just incorporated and working out what comes next? Our guide to choosing a C-Corp or LLC for VC fundraising covers the structure investors expect before a term sheet ever arrives, and the formation glossary entry on capitalisation tables explains the document this tool is modelling changes to.

Once the round closes, the dilution calculatorshows what the new money and option pool did to everyone's ownership, the SAFE note conversion calculator handles any SAFEs converting alongside it, and the vesting schedule simulator covers when the shares actually become yours. On the other side of the table, the employee equity offer calculator shows what a grant is worth to the person receiving it, and the 409A valuation timing checklist covers when the strike price behind those grants needs refreshing. Terms you do not recognise are defined in the cap table glossary.