Broad-Based Anti-Dilution
The more employee-friendly weighted-average formula that includes all shares in the calculation.
Definition
Broad-based weighted average anti-dilution uses the total fully diluted share count (including all options, warrants, and convertible securities) as the denominator in its conversion price adjustment formula. Because the denominator is larger, the adjustment is smaller, meaning less additional dilution for common stockholders compared to narrow-based. Broad-based is the standard in most modern venture deals and is strongly preferred by founders.
Why it matters
If your company's investors have broad-based anti-dilution (rather than narrow-based), you face less dilution in a down round. This is the standard term and you should be concerned if investors negotiate for narrow-based instead.
Example
In a down round with broad-based anti-dilution, the conversion adjustment might change the investor's price from $5.00 to $4.50/share. With narrow-based, the same scenario might adjust to $4.20/share, creating significantly more dilution for employees.