TLDR:
Full ratchet is the most investor-protective anti-dilution provision, adjusting the conversion price of existing preferred shares to match the lowest price of any new shares issued in a down round.
Full Ratchet in Practice — A Numerical Example
Suppose an investor converts $1M of Series A preferred at $1.00/share (1M shares). The company then raises a down round at $0.50/share (full ratchet triggers). The investor’s new conversion price becomes $0.50, meaning their $1M investment now converts at $0.50/share — doubling their share count to 2M shares. This aggressive adjustment severely dilutes founders and common shareholders. If the company has 10M total shares, the Series A investor moves from 10% to 20% ownership at the expense of all other holders, which is why full ratchet provisions are strongly resisted by founders and their counsel.