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    Anti-Dilution Protection

    Adjustment that protects investors if the company raises a future round at a lower price.

    Reviewed by Christian Espinosa, Founder, Blue Goat CyberLast reviewed May 5, 2026

    Definition

    Anti-dilution provisions adjust the conversion price of preferred stock if the company issues new shares at a lower price than a prior round (a 'down round'). The most common formula is 'broad-based weighted-average,' which partially compensates earlier investors. 'Full ratchet' fully repriced and is investor-friendly but rare. Broad-based weighted average counts all outstanding shares, including options, so its adjustment is milder than the narrow-based version. Full ratchet resets the conversion price to the new lower price no matter how many shares are issued. Standard carve-outs stop option grants and certain strategic issuances from triggering an adjustment.
    What the regulation says
    While not directly addressed by MedTech regulations like 21 CFR 820 or the EU MDR, anti-dilution protection is a critical contractual element for medical device companies, influencing financial stability and investor relations, which indirectly supports sustained compliance efforts and product development.

    What this means in practice

    MedTech down rounds are common after disappointing trial readouts or FDA delays. Anti-dilution math meaningfully redistributes ownership in those moments.

    Examples

    • A MedTech startup raises a Series A round at $5 per share. After a failed clinical trial, they need more funding and raise a Series B at $2 per share, triggering anti-dilution provisions for Series A investors.
    • An investor holds preferred stock with a full-ratchet anti-dilution clause. When the company issues new shares at a lower price, the investor's conversion price adjusts completely to that new, lower price.
    • A MedTech company with a broad-based weighted-average anti-dilution clause issues new shares in a down round, resulting in a partial adjustment of the conversion price for previous investors, balancing protection with new investment.
    Common pitfalls
    • •Misunderstanding the specific anti-dilution formula can lead to unexpected equity dilution for founders and early employees during a down round.
    • •Failing to negotiate clear anti-dilution terms upfront can create significant disputes and legal challenges during subsequent funding rounds.
    • •Assuming that anti-dilution provisions will fully protect all early investors overlooks the nuances of different formulas, such as broad-based weighted-average versus full ratchet.
    • •Overly aggressive anti-dilution terms can make it difficult to attract new investors in a down round, as it disproportionately impacts their potential ownership.

    Frequently asked questions

    Anti-dilution protection directly impacts equity distribution rather than overall company valuation. However, the presence and terms of such provisions can influence investor perception and willingness to invest, indirectly affecting future valuations.

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    Sources

    3 sources

    Every citation below opens the original document. Each is graded against our source-tier hierarchy so you can see what rests on binding law versus commentary.

    Tier 4Trade press and expert commentary· 3
    Link health: 3 verified· last checked 2026-06-20
    Cooley GO·1NVCA·1SVB·1
    1. 1
      Cooley GO: anti-dilution
      Tier 4 Verified
      Cooley GOcooleygo.com
    2. 2
      NVCA Model Documents
      Tier 4 Verified
      NVCAnvca.org
    3. 3
      Silicon Valley Bank - Healthcare Reports
      Tier 4 Verified
      SVBsvb.com

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