About the Anti-Dilution Calculator
Anti-dilution provisions protect preferred investors when a company later sells shares at a lower price — a down round. Instead of issuing new shares directly, the provision lowers the conversion price of the existing preferred stock, so each preferred share converts into more common shares. This calculator shows the adjusted conversion price, the new as-converted share count and the extra shares created under both broad-based weighted average and full ratchet formulas.
Founders, employees and investors use it to understand what a down round really costs common shareholders, and to compare the two main term-sheet options. Broad-based weighted average is the market standard (and the default in the NVCA model documents); full ratchet is rare and far more punitive to founders.
For a narrow-based weighted average, enter only the share classes your charter counts (often just outstanding preferred and common) in the outstanding-shares field. The calculator assumes the original issue price equals the original conversion price, which is the usual starting point.
With the default inputs, the adjusted conversion price is $1.8333. Change any value above to recalculate instantly.
How to use the anti-dilution calculator
- 1Enter the original conversion price of the protected preferred series.
- 2Enter the down-round price and the number of new shares issued.
- 3Enter shares outstanding before the round as your charter defines them (broad or narrow).
- 4Enter the preferred shares held by the protected investor.
- 5Choose weighted average or full ratchet and compare the results.
Formula and method
The weighted average formula blends the old conversion price with the down-round price according to how many shares are issued. A is the share count before the round, C is the number of new shares actually issued, and B is the number of shares the new money would have bought at the old conversion price. The more shares issued cheaply relative to A, the bigger the adjustment.
A broad-based formula counts all common, as-converted preferred, options and warrants in A, which produces a smaller adjustment than a narrow-based formula that counts fewer shares. Full ratchet ignores size entirely and resets the conversion price to the new price. Each preferred share then converts into original issue price ÷ new conversion price common shares. No adjustment applies if the new price is not lower.
- CP1
- Conversion price before the down round
- CP2
- Adjusted conversion price
- A
- Shares outstanding (as defined in the charter) before the new issue
- B
- Shares the new money would buy at CP1
- C
- New shares actually issued
Worked examples
Broad-based weighted average, price halves
Raising $2M at $1.00 (2M shares) would have bought 1M shares at the old $2.00 price. CP2 = $2.00 × (10M + 1M) ÷ (10M + 2M) = $1.8333, so 2M preferred shares now convert into about 2,181,818 common shares — 181,818 extra.
Same round under full ratchet
Full ratchet resets the conversion price straight to the $1.00 down-round price, so the investor’s 2M shares convert into 4M common shares. That is 2M extra shares versus 181,818 under weighted average.
Larger down round
$6M raised at $0.75 would have bought 4M shares at $1.50. CP2 = $1.50 × 24M ÷ 28M ≈ $1.2857, so 5M preferred shares convert into about 5.83M common shares, versus 10M under full ratchet.
Up round — no adjustment
Because $2.50 is above the $2.00 conversion price this is not a dilutive issuance, so the conversion price stays at $2.00 and no extra shares are created.
Frequently asked questions
What is broad-based weighted average anti-dilution?+
It is the most common anti-dilution term. The conversion price is reduced by a weighted average of the old and new prices, where the weighting counts all outstanding common, preferred on an as-converted basis, options and warrants. It is the standard in NVCA model documents.
What is the difference between broad-based and narrow-based?+
Both use the same formula, but narrow-based counts fewer shares in A (often only outstanding preferred, or preferred plus common). A smaller A makes the new shares a bigger part of the total, so the conversion price falls further and investors get more shares.
Why is full ratchet considered harsh?+
Full ratchet resets the conversion price to the down-round price no matter how few shares are sold. Even a tiny financing at a low price can double an investor’s share count, with the dilution falling almost entirely on founders and employees.
Does anti-dilution protect against all dilution?+
No. It only adjusts for issuances below the conversion price. Ordinary dilution from up rounds, and usually option grants under an approved plan, are carved out, so investors still dilute proportionally in those cases.
Who pays for anti-dilution adjustments?+
The extra as-converted shares dilute everyone who does not have protection — typically founders, employees and common holders — plus any preferred series without anti-dilution rights or that waived them.
Results are general estimates and not legal advice. Laws vary by jurisdiction — consult a qualified attorney.
Sources