Anti-Dilution / Anti-Dilution Protection

Anti-dilution clauses protect investors against economic dilution when the company raises capital in a later round at a lower valuation (a down round). The two most important variants are ‘full ratchet’ (the investor’s own entry valuation is adjusted down to the lowest subsequent valuation) and ‘broad-based weighted average’ (a weighted average that takes account of the shares already outstanding).

In DACH venture capital practice, broad-based weighted average is the dominant market standard; full-ratchet clauses are founder-unfriendly and enforceable only in special situations. Anti-dilution protection is closely linked to the topic of liquidation preferences and to cap-table modelling.