Anti-Dilution Protection” is a common provision given to Investors in Venture Capital Financings, which is intended to protect them from the future Dilution of their Equity Ownership stakes from either (i) an increase in the total number of shares outstanding and/or (ii) the later sale of shares of stock at a price per share less than what the investors paid in their earlier financing round.

Investor protections such as Preemptive Rights or Participation Rights allow the corresponding Stockholders to invest in future equity financing rounds so that they can maintain their equity ownership percentages in the company by purchasing additional shares of Capital Stock at the corresponding offering prices in such equity financing rounds.

For Preferred Stock financings, Anti-Dilution Protections are achieved with Anti-Dilution Adjustments such as Weighted-Average Anti-Dilution Protection or Full-Ratchet Anti-Dilution Protection, which increase the number of shares of Common Stock that the applicable series of Preferred Stock can convert into, thereby increasing the equity ownership of the holders of such series of Preferred Stock on an As Converted to Common Stock Basis and Fully-Diluted Ownership Basis.

For more information regarding Anti-Dilution Protection, please see the related resources from the Legal INCubator: