Term sheet clause 5 of 25 · Economics
Anti-dilution in a term sheet
In plain English: Adjusts the investor's conversion price if you later raise at a lower price (a down round). Typical: Broad-based weighted average.
Founder-friendly
Broad-based weighted average.
Investor-friendly
Narrow-based or full ratchet.
What to watch for
Red flag
Full ratchet (reprices to the new low price).
How to model it
Don't judge this clause by reading it; put numbers on it. In our workbooks it's modelled in Cap Table - Round Simulator for down-round tests, so you can see what it changes in your ownership or your payout before you agree.
Not legal advice. Norms vary by country and market cycle. Have a startup lawyer review your term sheet before you sign.