Glossary
Full Ratchet Anti-Dilution
The most aggressive anti-dilution protection — adjusts an investor's conversion price to the lowest price at which the company subsequently issues shares.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
Full Ratchet Anti-Dilution is the most investor-favourable (and founder-unfriendly) anti-dilution protection. If the company issues new shares at a lower valuation than the previous round, the earlier investor's conversion price is reset to that lower price — regardless of how many new shares were issued.
Full ratchet contrasts with weighted-average anti-dilution (broad or narrow based), which adjusts the conversion price based on both the new price AND the number of new shares — much less punitive to founders.
India Context
Full ratchet is rare in Indian early-stage deals in 2026 — Indian institutional investors at seed and Series A typically accept broad-based weighted-average anti-dilution. Full ratchet appears more often in: (a) bridge financing rounds, (b) crossover/late-stage investors with pre-IPO mandates, or (c) downside-protection clauses in distressed companies.
If a term sheet offers full ratchet, founders should push back hard or accept only with a sunset clause (ratchet expires after 24-36 months of no down round).
Example
A seed investor put ₹2Cr at ₹20Cr post-money for 10% ownership via CCPS. Two years later, a bridge round prices the company at ₹15Cr post-money (down round). With full ratchet: the seed investor's conversion price resets so they get the same effective ownership at the new ₹15Cr — meaning ~13.3% post-bridge instead of 10%, diluting founders more. With weighted-average: the adjustment would be smaller (typically 1-2 percentage points).
Frequently Asked Questions
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