What is anti-dilution protection?
Anti-dilution protection shields preferred-stock investors against issuances of new equity at a price lower than their original purchase price (a “down round”). Without protection, the investor’s effective ownership and economic position would dilute. The two primary structures are full ratchet (aggressive, rare today outside special situations) and the much more common weighted-average ratchet.
Weighted-average formula
The weighted-average adjustment recalculates the investor’s conversion price using the size of the down round relative to the existing capitalisation. Two variants:
- Broad-based weighted average: NCP = OCP × (A + B) / (A + C), where OCP = original conversion price, A = outstanding common (including options, warrants, convertibles on as-converted basis), B = proceeds-divided-by-OCP shares that would have been issued at OCP, C = actual shares issued. Industry standard; NVCA Model Documents default.
- Narrow-based weighted average: same formula but A counts only outstanding preferred — produces a larger adjustment, more dilutive to founders.
Full ratchet vs. weighted average
- Full ratchet: conversion price drops to the down-round price regardless of round size. Highly punitive to founders; mostly avoided.
- Weighted average (broad-based): proportionate adjustment based on size of down round; founder-fair industry standard.
Typical carve-outs
- Issuances under board-approved option plans (within pre-agreed reserve).
- Shares issued in M&A consideration (board approved).
- Shares issued upon conversion of existing convertibles.
- Strategic partnerships / commercial collaborations (often with cap).
Türk uygulamasında
Türk girişim sermayesi pratiğinde NVCA Model Documents-tipi yapı yaygın benimsenir; broad-based weighted average standarttır. Türk Anonim Şirket yapısında imtiyazlı pay (TTK Madde 478) çerçevesinde anti-dilution mekaniği esas sözleşme veya hissedar sözleşmesi düzenlemesiyle uygulanır. Pratikte conversion fiyatı ayarlaması yerine yatırımcıya ek pay tahsisi (top-up shares) ile uygulama da görülür.
Do: default to broad-based weighted-average ratchet; document carve-outs (option pool, M&A, conversion of existing instruments) clearly; align with NVCA Model Documents for international rounds.
Don’t: agree to full ratchet or narrow-based weighted average without strong negotiating reason — both are founder-punitive and signal weak negotiating position.