Definition
Down Round Protection (Full Ratchet)
Full-ratchet anti-dilution resets an earlier investor's conversion price to the price of a later, lower-priced round, fully protecting them from a down round.
Under a full ratchet, if a startup later raises at a lower price, the earlier investor's preferred shares convert as if they had paid that new, lower price — regardless of how few shares the new round issued. This is the harshest form of anti-dilution and heavily dilutes founders and unprotected holders.
Most Indian and global venture deals instead use the milder broad-based weighted-average method, which adjusts the conversion price based on the size and price of the new issue. Full ratchet is rare and usually a sign of an investor-favourable, high-risk deal.
Related terms
- Down RoundA down round is a funding round in which a startup raises money at a lower valuation than its previous round.
- Anti-Dilution ProvisionAn anti-dilution provision protects investors from dilution if the company later raises money at a lower price than they paid.
- Preferred Shares (Startup)Preferred shares are the class of equity VCs typically receive, carrying special rights such as liquidation preference and anti-dilution over common shares.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.