Full Ratchet Anti-Dilution
The harshest anti-dilution: the conversion price drops to the exact price of any cheaper future round.
Definition
Full ratchet anti-dilution adjusts the conversion price of existing preferred stock all the way down to the price of the new, lower-priced round, regardless of how many new shares are issued. Even if only a tiny round is raised at a lower price, all existing preferred shares get repriced to that new low price. This is extremely unfavorable for common holders and is rarely used in standard venture deals.
Why it matters
Full ratchet is the worst-case scenario for employees. A single share sold at a lower price can reprice all existing preferred, creating massive dilution for common holders. If you see full ratchet in your company's terms, it is a red flag for your equity value in a down market.
Example
Series A investors bought $10M of shares at $5/share (2M shares). A small bridge round issues shares at $1/share. With full ratchet, all 2M Series A shares reprice to $1, giving Series A holders 10M shares instead of 2M. Common holders go from 60% ownership to under 20%.