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In a down round (i.e., a financing in which the valuation of the company is lower than the valuation at the previous round of financing), preferred stockholders who have down-round protection will be able to adjust their conversion ratio (the ratio at which they convert into common stock, which is initially 1:1) to a lower ratio such that they are entitled to receive more shares of common stock upon conversion. Full-ratchet anti-dilution protection lowers the ratio as if the preferred stockholder had invested at the lower valuation. Weighted-average anti-dilution protection is standard and is in between full-ratchet anti-dilution protection and no anti-dilution protection.

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Anti-dilution adjustments (down-round protection)