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:
Broad-based Weighted Average
Narrow-Based Weighted Average