What is Weighted Average Anti-Dilution?
Weighted Average Anti-Dilution
Weighted Average Anti-Dilution is a common investor protection clause that adjusts conversion prices during down rounds based on both the lower share price and the volume of new shares issued.
Why It Matters for Startups
Directly dictates the cap table and dilution structure during fundraising; understanding Weighted Average Anti-Dilution helps founders model equity distributions when structuring rounds for anti-dilution modeling and standard investor contract drafting.
Detailed Deep Dive
Weighted Average Anti-Dilution provides a balanced protection mechanism. Unlike the severe full ratchet, the weighted average conversion price adjustment is moderated by the scale of the down round, protecting investors from loss without completely wiping out founder equity.
Frequently Asked Questions
Q:What are the two common types of weighted average anti-dilution?
Broad-Based (which factors in the entire outstanding capital stock) and Narrow-Based (which only counts outstanding preferred stock).
Q:Which type of weighted average is more founder-friendly?
Broad-Based Weighted Average is more founder-friendly because it dilutes the adjustment impact across a larger pool of shares.
Quick Facts
- CategoryLegal
- Key ApplicationAnti-dilution modeling and standard investor contract drafting
Coverage Trend12 Weeks
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