anti dilution

Adjustment Mechanism

Mathematical formulas determine the scale of share issuance based on the price difference between rounds. A full ratchet anti dilution approach resets the investor price to the lowest new price regardless of the amount of new capital raised. Weighted average methods provide a more moderate adjustment by accounting for the total capital involved in the down round.

This calculation often uses a broad base or narrow base definition to include or exclude certain shares from the pool.

Conversion Rate

The ratio at which preferred stock becomes common stock changes to account for the new share price. Lowering the conversion price increases the number of shares the investor receives upon conversion.

Ownership Cost

Maintenance of a fixed percentage requires the founder to surrender a larger portion of the total equity pool than anticipated. Every subsequent dollar raised at a lower price point consumes more of the remaining equity. This process drains the energy and capacity of the founder who must manage a shrinking stake while maintaining operational control.