Anti-dilution provisions protect preferred stockholders if the company later sells shares at a lower price than they paid, a down round. They do not stop dilution. They adjust how many common shares the investor's preferred stock converts into.
How often it comes up
Down rounds were 11.4% of the deals in Cooley's Q1 2026 report, and fewer than 14% of Q4 2025 rounds on Carta.1,2 Uncommon, but not rare.
The two main types
- Broad-based weighted average. The investor's conversion price is lowered by a formula that weighs how much new stock is issued and at what price, counting the company's full capitalization. This is the common, more balanced form.
- Full ratchet. The investor's conversion price drops all the way to the new, lower price, regardless of how few shares are sold at it. This is rare and can shift a lot of ownership away from founders and employees.
The formula
Broad-based weighted average usually looks like this:
New price = Old price × (A + B) ÷ (A + C)
- A = shares outstanding before the new issue, on a fully diluted basis
- B = shares the new money would have bought at the old price
- C = shares actually issued in the new round
A small down round moves the price a little. A large one moves it more. "Narrow-based" versions count fewer shares in A, which gives investors more protection.
What to check
- Which formula each series of preferred uses.
- Carve-outs: issuances that do not trigger an adjustment, such as option grants.
- Whether any pay-to-play terms remove protection from investors who do not join a later round.
This guide explains how these terms commonly work. Documents vary, and yours control. Talk to a lawyer before you sign.