Rhode Island Anti-Dilution Adjustments
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How to fill out Anti-Dilution Adjustments?
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FAQ
There are two main types of anti-dilution clauses: full ratchet and weighted average. Full ratchet is the most favorable for investors and the most harsh for founders. It means that your share price will be lowered to match the lowest price paid by any new investor in any future round.
Anti-dilution provisions are clauses that allow investors the right to maintain their ownership percentages in the event that new shares are issued. Dilution refers to a shareholder's ownership decreasing as a result of new shares being issued.
Very simply, if the original conversion price was $5 and in a later round the conversion price is $2.50, the investor's original conversion price would adjust to $2.50. The weighted average provision uses the following formula to determine new conversion prices: C2 = C1 x (A + B) / (A + C)
The two common types of anti-dilution clauses are known as "full ratchet" and "weighted average." With a full ratchet provision, the conversion price of the existing preferred shares is adjusted downward to the price at which new shares are issued in later rounds.
The most common types of anti-dilution are full ratchet and weighted average (which can be broad or narrow ? but we'll get to that). Full ratchet anti dilution is generally better for investors while weighted average is more founder-friendly.
