When a startup raises a new round at a valuation lower than the previous one — a so-called down round — the investors who put in capital earlier face a problem: they paid for their shares more than they are now worth. To protect them, almost all term sheets include an anti-dilution clause: a mechanism that, in case of a down round, reduces the price at which their preferred shares convert, giving them more common shares to compensate for the loss of value. But this protection has a cost, and it is paid by the founders and the unprotected shareholders, who are diluted more. There are two main methods, very different in severity: the full ratchet, aggressive, and the weighted average, fairer. This calculator shows exactly how many additional shares the protected investor receives, the new conversion price and how much their stake moves, comparing the two methods. It is parametric and international: anti-dilution clauses are a global standard of venture capital.

What anti-dilution is

Anti-dilution protection is a clause typical of the preferred shares that venture capital investors receive. It serves to protect them from a specific type of loss: the one that occurs when the startup issues new shares at a price lower than the one the investor paid. In that case, without protection, the investor would have overpaid for their shares relative to the newcomers. The anti-dilution clause corrects this imbalance by lowering the conversion price of the preferred shares: since each preferred share converts into a number of common shares equal to the ratio between the original price and the conversion price, lowering the latter increases the number of common shares the investor will receive. In practice, the investor gets additional shares "for free" to compensate for the price drop. It is important to understand that anti-dilution protects from price dilution (the down round), not from the normal dilution everyone undergoes when new shares are issued. The calculator quantifies this protection.

What a down round is

A down round is a funding round in which the startup raises capital at a valuation (and thus at a price per share) lower than the previous round. It is the opposite of an up round, the normal situation in which a startup grows and is worth more at each round. Down rounds happen when the company has not reached the expected goals, when the market cools down, or when the previous round's valuations were too optimistic. They are painful for everyone: for the founders, who see their company valued less; for the investors, who see the value of their shares drop; and for the team's morale. But they are also the moment when the protection clauses written in the term sheets — anti-dilution first — trigger and show their weight. A down round with full ratchet anti-dilution can transfer a significant slice of equity from the founders to the earlier investors. The calculator serves precisely to make this transfer visible, before or during the negotiation of the round.

How the conversion price adjustment works

The anti-dilution mechanism revolves around the conversion price of the preferred shares. When an investor buys preferred shares at, say, 2.00 € each, initially each preferred share converts into one common share (conversion price = purchase price = 2.00 €). If a down round at 1.00 € then arrives, the anti-dilution clause lowers the conversion price. The conversion ratio becomes: common shares received = original price ÷ new conversion price. If the conversion price drops to 1.00 € (full ratchet), the ratio becomes 2.00 ÷ 1.00 = 2: each preferred share now converts into two common shares, doubling the investor's holding. With the weighted average, the conversion price drops less, and the ratio is closer to 1. The calculator computes the new conversion price according to the chosen method, and from there the additional shares the investor receives and their new stake. This is where the difference between the two methods shows.

The full ratchet

The full ratchet is the most aggressive and most investor-favorable anti-dilution method. Its rule is simple and drastic: in case of a down round, the investor's conversion price is reset to the new price, in full, as if the investor had paid the reduced round price from the start. It does not matter how many new shares are issued: even if the down round is tiny (few shares at a low price), the full ratchet still lowers the conversion price of all the investor's shares to the new level. This makes it extremely punitive for the founders: an investor who had paid 2.00 € and sees a down round at 1.00 € doubles their shares, and all this new issuance dilutes those who are not protected. The full ratchet is considered a harsh clause, and experienced founders try to avoid it or limit it. It is acceptable only in situations of great bargaining imbalance, or when the investor asks for strong protection for a high risk. The calculator shows how brutal it is by comparing it with the weighted average.

The weighted average

The weighted average is the most widespread and fairer-considered anti-dilution method, and it is the market standard in most term sheets. Unlike the full ratchet, it does not reset the conversion price to the new price, but lowers it in a way proportionate to the size of the down round: it accounts for how many new shares are issued relative to those already existing. The formula is: new conversion price = original price × (existing shares + shares at the old price) ÷ (existing shares + new shares issued). The result is that a small down round (few new shares) produces a minimal adjustment, while a large down round produces a larger one. This makes the weighted average much more balanced: it protects the investor, but without excessively penalizing the founders for a modest downsizing round. It exists in two variants — broad-based (includes all shares, including the option pool) and narrow-based (only the preferred) — with the broad-based more founder-favorable. This calculator uses the broad-based, the most common.

Full ratchet versus weighted average: the comparison

The table compares the two methods on the same down round — original price 2.00 €, new price 1.00 €, investor with 2 million shares, 10 million total pre-round shares, new investment 2 million:

The comparison is striking. On the exact same down round, the weighted average gives the investor about 182,000 additional shares, while the full ratchet gives 2 million — more than ten times as much. The reason is that the weighted average "weights" the price drop by the small size of the down round (2 million new shares out of 10 already existing), lowering the conversion price only a little (from 2.00 to 1.83). The full ratchet, instead, ignores the size of the round and resets the price entirely to 1.00, doubling the investor's shares. This is why the choice of method is one of the most important clauses to negotiate in a term sheet: the difference between the two, in a down round, can be worth an enormous slice of equity. The calculator lets you simulate both and see the difference for your numbers.

Who pays the protection: the founders

A fundamental point, often poorly understood, is that anti-dilution does not create value from nothing: the additional shares the protected investor receives are created by diluting everyone else. When the conversion price drops and the investor gets more common shares, the total number of the company's shares increases, and so the stake of those who are not protected — typically the founders, the employees with stock options, and sometimes the investors without the clause — is reduced. In practice, anti-dilution protection transfers equity from the founders to the earlier investors. In an already painful down round, this adds insult to injury: the founders see their company worth less and, at the same time, their stake shrink further to compensate the investors. This is why founders must understand these clauses well when they sign a term sheet, long before a down round materializes. The calculator makes visible who gains and who loses, so as to negotiate knowingly.

Why investors ask for anti-dilution

From the investor's point of view, anti-dilution is a legitimate and understandable protection. A venture capital investor invests based on a valuation, and accepts a high risk. If the company then raises at a lower valuation, without protection the investor would have overpaid for their shares relative to the newcomers, suffering a relative loss of value. Anti-dilution rebalances: it ensures that, in case of a down round, the earlier investor is not disadvantaged relative to those who enter at the lower price. It is also an incentive for the company not to raise at reduced valuations without necessity. The balance point is how strong this protection must be: the weighted average is seen as fair because it protects proportionately; the full ratchet is seen as excessive because it protects beyond the measure of the actual damage. The negotiation of anti-dilution is, ultimately, a negotiation over how much price risk the investor transfers to the founders. The calculator helps both parties put numbers on it.

The exceptions: the carve-outs

Not all new share issuances trigger anti-dilution. Well-made term sheets include a series of exceptions (carve-outs): share issuances that do not trigger the clause, even if they occur at a low price or for free. The most common are: the shares reserved for employees through the option pool (stock options, restricted stock); the shares issued for acquisitions or strategic partnerships; the shares issued in favor of banks or leasing in financing operations; and the shares deriving from the conversion of instruments already in place. Without these carve-outs, every grant of stock options to employees would trigger anti-dilution, an absurd result. The carve-outs are therefore an important part of the clause, and their breadth is subject to negotiation: the more carve-outs there are, the more rarely anti-dilution triggers. This calculator models the triggering of the clause on a financing down round; issuances covered by carve-outs would not trigger the adjustment and must be excluded from the calculation.

Anti-dilution, pay-to-play and other clauses

Anti-dilution intertwines with other term sheet clauses, and must be read in context. An important clause is the pay-to-play: it provides that an investor, to maintain their protections (including anti-dilution), must participate in subsequent rounds proportionally (do their "pro-rata"). Those who do not participate lose the protections or see their preferred shares converted into common. Pay-to-play serves to incentivize investors to keep supporting the company, especially in difficult moments like a down round. Another connected clause is the liquidation preference, which establishes who gets paid first and how much in case of a sale: together with anti-dilution, it defines the investor's overall economic protection. Understanding how these clauses interact is essential to assess a term sheet as a whole, not item by item. This calculator focuses on anti-dilution, but always keep it in the context of the investor's other protections.

How founders can protect themselves

Founders are not powerless in the face of anti-dilution: there are several negotiating levers. The first is to prefer the weighted average to the full ratchet: it is the most important request, because the difference between the two, in a down round, is enormous. The second is to aim for the broad-based variant of the weighted average (which includes the option pool in the calculation, softening the adjustment) instead of the narrow-based. The third is to negotiate broad carve-outs, so that many issuances do not trigger the clause. The fourth is, upstream, to avoid the down round itself: raise when in a position of strength, not only when the money is running out, and do not inflate the valuation in a round only to then have to reduce it in the next (a valuation too high today makes a down round tomorrow more likely). The fifth is to understand these clauses before signing, not when it is too late. The calculator is a tool for the fourth and fifth levers: it makes the impact of the clauses concrete, so as to negotiate them knowingly.

Limits of the calculator

This tool provides an estimate of the anti-dilution effect with a simplified model. It computes the conversion price adjustment for the full ratchet and for the broad-based weighted average, but real term sheets can have formulas with different details (narrow-based weighted average, specific definitions of which shares count in the base, particular carve-outs). The model considers a single protected investor and a single down round; in reality there can be several series of preferred shares with different protections, adjustments that add up over several rounds, and interactions with other clauses (pay-to-play, preferences). The estimated stake after the adjustment is approximated on the total post-round shares and does not account for all the convertible instruments in place. It is not legal or financial advice: use the calculator to understand the logic of anti-dilution and the difference between the methods, but for a real term sheet refer to the exact text of the clauses and a lawyer specialized in venture capital, because the effects depend on the precise definitions of the contract.

How severe the full ratchet is: an extreme scenario

To understand how brutal the full ratchet can be, it is worth seeing a heavy down round scenario. The table compares the two methods with a 75% price drop — original price 2.00 €, new price 0.50 € — on an investor with 2 million shares, 10 million pre-round shares:

With a 75% price drop, the full ratchet resets the conversion price to 0.50 €, quadrupling the investor's shares (multiplier 4.0×): from 2 million to 8 million shares, with 6 million extra shares created from nothing. The investor's stake can go from about 20% to over 40% of the equity, and all this new issuance brutally dilutes the founders. The weighted average, on the same price drop, produces a much more contained adjustment (it depends on the size of the new investment), because it accounts for how many shares are actually issued. This is why the full ratchet is considered almost punitive: it protects the investor well beyond the measure of the damage they would have suffered from dilution alone. For a founder, accepting a full ratchet means betting there will never be a down round — a risky bet. The calculator makes the stakes evident.

VC terms and protections around the world

Anti-dilution clauses are part of a set of standard protections that venture capital investors ask for all over the world. The table summarizes the typical market practices:

The table shows that the venture capital market has developed fairly uniform practices internationally, often inspired by US models (like the standard term sheets of the National Venture Capital Association) and adapted to the different jurisdictions. In a founder-friendly market, the lighter conditions prevail (broad-based weighted average, 1× non-participating preference); in a difficult market or a down round, investors ask for stronger protections (sometimes full ratchet, pay-to-play, multiple preferences). Knowing the market standard helps understand whether a term sheet is aggressive or fair. A founder who is offered a full ratchet in a normal market has a good argument to ask for the weighted average, which is the norm. The calculator helps put numbers on these clauses to negotiate them with data in hand.

How anti-dilution combines with normal dilution

It is important not to confuse two types of dilution that, in a down round, act together. Normal dilution is the one every shareholder undergoes when new shares are issued for the new investors: their slice of the pie shrinks because the pie is divided into more slices. This hits everyone, protected and not. Price dilution is the one specific to the down round, corrected by anti-dilution only for those who have the clause. In a down round, the protected investor undergoes the normal dilution (like everyone) but is compensated by anti-dilution for the price part; the founders undergo the normal dilution plus the additional dilution caused by the extra shares given to the protected investor. It is this sum that makes down rounds so painful for founders. For a complete estimate, this calculator shows the anti-dilution effect; for the round's normal dilution, it must be combined with a calculation of the dilution from new issuance. Together they give the complete picture of a round's impact.

Example: a founder facing a down round

Imagine a founder who, two years ago, raised a Series A round at a valuation of 20 million, selling 20% to an investor with a weighted-average anti-dilution clause. Her company struggled, and now she must raise a new round, but the market conditions have changed: the best term sheet she receives is at a valuation of 10 million — a down round at half the price. The Series A investor's anti-dilution triggers. With the weighted average, their conversion price drops a little, and they receive some extra shares: the founder is diluted, but manageably. If, however, the Series A term sheet had provided a full ratchet, the investor would see their shares almost double, and the founder's stake would collapse much more. The difference between the two scenarios — the same company, the same down round — is enormous, and depends on a clause signed two years earlier. It is the demonstration of how much it matters to understand and negotiate anti-dilution at the start. The calculator lets you simulate both scenarios and see the difference in shares and stake.

Questions to ask before signing a term sheet

Before signing a term sheet with an anti-dilution clause, a founder should ask some key questions. Is the method weighted average or full ratchet? — if full ratchet, ask to change it, because it is the norm. If it is weighted average, is it broad-based or narrow-based? — prefer the broad-based, more founder-favorable. What are the carve-outs? — make sure the option pool and ordinary issuances do not trigger the clause. Is there a pay-to-play? — understand what happens if an investor does not participate in future rounds. How does it interact with the liquidation preference? — assess the investor's overall economic protection, not just anti-dilution. And above all: how much does this clause cost in a down round scenario? — simulate it before signing, not discover it after. The calculator answers the last question, the most important, making the impact of the clauses concrete before it is too late to negotiate them.

Updated July 2026