Anti-dilution Clause : Weighted Average

What's market for Anti-dilution clauses for venture investment in the US? It seems to be.... Weighted Average and by a large margin if I may add. What are 'Anti-dilution clauses/provisions'? Anti-dilution provisions are mechanisms in investment agreements that protect investors from the dilution of their ownership stake in a company during
Dec 07, 2023
Anti-dilution Clause : Weighted Average

What's market for Anti-dilution clauses for venture investment in the US? It seems to be....

Weighted Average

and by a large margin if I may add.

What are 'Anti-dilution clauses/provisions'?

Anti-dilution provisions are mechanisms in investment agreements that protect investors from the dilution of their ownership stake in a company during subsequent funding rounds. If the company raises capital at a lower valuation than the previous round, these provisions adjust the conversion price of the investor's preferred shares, allowing them to receive additional shares to maintain their original percentage ownership. This helps investors protect the value of their investment and maintain their relative ownership position in the company. <shameless plug : Jigo AI LLM output>

There are 2 different anti-dilution clauses that a startup founder may come across (in the US). 'Full Rachet' and 'weighted average(Broad or Narrow-based)'. There seems to be common consensus that 'weighted average' is the dominate clause in startup investment contracts (a simple google search will confirm this) but data on this is really hard to find.

According to a survey by Fenwick & West LLP, 'full ratchet' anti-dilution provisions are all but non existent in venture financings in Silicon Valley in the fourth quarter of 2022. I recall seeing somewhere that says around 4% of startup investments in the valley had 'full rachet' but we can't seem to find a credible sources for that data point. But its safe to say that 'weight average' anti dilution clauses is in market for startup investment contracts in the US. If you see 'full rachet', know its not market... by a lot.

Silicon Valley startup investment Anti-dilution provisions <Fenwich & West LLP Q4 2022 survey>

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