Definition
An anti-dilution mechanism that adjusts an investor's equity stake if the company raises money at a lower valuation, protecting them from down rounds. Full ratchet is brutal; weighted average is gentler.
Example Usage
The Series A terms included a full ratchet provision that would devastate founder ownership if we had to raise a down round.
Origin
Borrowed from mechanical ratchet mechanisms, used in venture finance since the 1980s
Fun Fact
Full ratchets are considered founder-hostile and rare in normal markets, but they proliferate during venture downturns when investors have leverage.
Source: Venture capital anti-dilution provisions terminology
Related Terms
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See “ratchet” in Corporate Speak, Gen-Z Slang, Pirate Speak, and more.
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