Full Ratchet
Definition
Full ratchet is the aggressive form of anti-dilution protection: in a down round, earlier investors’ conversion price resets entirely to the new lower price, regardless of how few new shares are issued.
How it comes up in fundraising
Full ratchet terms shift down-round pain almost entirely onto founders and employees; standard practice is the milder broad-based weighted average instead.
Frequently asked questions
Should founders accept full ratchet terms?
Almost never at early stages; it is a red-flag term worth negotiating hard against, and most credible investors do not ask for it.
What is the standard alternative?
Broad-based weighted average anti-dilution, which adjusts price proportionally to the size of the down round.
Related terms
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