The Dilution Nuke

"Full Ratchet" is the deadliest term in a term sheet. It says: "If you ever sell stock cheaper than I bought it, pretend I bought it at that cheaper price too."

In a down round, this creates a death spiral where the investor gets free shares and you get crushed.

Down Round Sim

Anti-Dilution Clause
New Round Price
$1.00$0.50
$0.10 (Crash)$1.50 (Up Round)
Cap Table Stack
Founders
50.0%
30.0% dilution
Investor (Series A)
25.0%
+2.0M Free Shares
New Money
25.0%