Anti-Dilution

Anti-dilution protection kicks in when a startup raises a new round at a lower valuation than the previous round — a "down round." Without this protection, earlier investors who paid a high price per share now hold shares worth less than they paid. Anti-dilution adjusts the conversion price of their shares downward, effectively giving them more shares to compensate.

Two main types: broad-based weighted average (the most common, most founder-friendly — the new conversion price is a weighted average factoring in how much new capital was raised and at what price) and full ratchet (the most investor-friendly, most punishing — the earlier investor's price drops all the way to the new round's lower price, regardless of amount raised).

Anti-dilution is standard in Indian term sheets, almost always as broad-based weighted average. Full ratchet provisions are rare in reputable Indian VC deals but sometimes appear in bridge rounds or strategic investor term sheets. During the 2022–2023 funding winter, many Indian startups faced down rounds — triggering anti-dilution clauses that significantly increased investor share counts and further diluted founders.

Indian founders should model down-round scenarios during good times. Running a 30% valuation haircut through your cap table shows exactly what anti-dilution would do to your ownership.