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Los Angeles, CA

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Anti-Dilution Clause

Anti-Dilution is a preferred stock term typically given to venture capital investors that protects the VC investor from a large reduction in ownership of a startup due to the startup’s issuance of additional shares at a price per share lower than what the VC investor previously paid.

 

The benefit of an anti-dilution clause for the VC investor is that the VC investor receives a conversion adjustment based on the lower-priced issuance of stock in the future.

 

 

The amount of the conversion adjustment depends on what type of anti-dilution protection is used:

  • Weighted Average

  • Broad-based Weighted Average

  • Narrow-Based Weighted Average

  • Full Ratchet