Anti-Dilution (Weighted Average)

TL;DR

A standard anti-dilution provision that adjusts a prior preferred holder's conversion price using a formula weighted by the size of the down round.

Weighted-average anti-dilution adjusts the prior round's conversion price based on how much new money was raised at the lower price relative to the size of the company. Broad-based formulas (the most common) include the option pool in the denominator; narrow-based versions exclude it and produce a sharper adjustment.

Weighted average is much less punitive than full ratchet and is the modern standard. The math is mechanical but the impact in a real down round is still meaningful and worth modeling before agreeing to terms.

Formula

New Conversion Price = Old CP × (A + B) ÷ (A + C)

• Old CP — Original conversion price of the protected series
• A — Common shares outstanding before the dilutive round (broad-based includes options + as-converted SAFEs; narrow-based excludes them)
• B — Shares that would have been issued at the old conversion price for the new round's dollars
• C — Actual shares issued in the dilutive round

Broad-based weighted-average is the most common, founder-friendlier variant.

Worked example

Old CP $2.00, A = 10M (broad-based), $5M raised at $1.00 (so B = 2.5M shares old, C = 5M shares new). New CP = $2.00 × (10M + 2.5M) ÷ (10M + 5M) = $2.00 × 12.5 ÷ 15 = $1.67. The Series A re-prices from $2.00 to $1.67 — partial protection, not full reset.

Common pitfalls

• Confusing broad-based and narrow-based formulas — the difference is material.
• Ignoring how anti-dilution interacts with pay-to-play.
• Modeling anti-dilution adjustments only at conversion, not at every down round.

When this shows up in a pitch deck

Term-sheet detail; not pitched in the deck.

Related terms

• Anti-Dilution (Full Ratchet) — The most aggressive anti-dilution provision: in a down round, prior preferred holders' conversion price ratchets down to the new round's price.
• Down Round — A funding round priced at a lower valuation per share than the previous round, typically triggering anti-dilution adjustments and signaling stress.
• Preferred Stock — The equity class issued to investors, carrying special rights such as liquidation preference, anti-dilution protection, and protective covenants.
• Term Sheet — A non-binding document outlining the principal terms of a proposed financing, used to align investor and founder before legal documents are drafted.
• Dilution — The reduction in an existing shareholder's ownership percentage caused by issuing new shares in a financing or an option grant.

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