Anti-Dilution Mechanics: Full-Ratchet vs Weighted-Average — What Founders Actually Sign in 2026

In 80% of French Series A term sheets, founders sign an anti-dilution clause without ever modelling its impact in a down-round scenario. The clause looks technical, almost secondary. Yet in 2024-2025, several French unicorn valuations were revised down — and at that exact moment, the difference between a full-ratchet and a weighted-average broad-based drafting translated into several points of founder equity transferred to prior investors. This article decodes the mechanics, gives a worked example and identifies the negotiation room founders should actually use.

This article is pedagogical. Any anti-dilution clause should be negotiated and drafted by a specialised business lawyer. Numerical examples are illustrative and do not bind the firm.

• Anti-dilution protects the investor against a later issuance of shares at a price lower than their entry price (down-round).
• Three main mechanics exist: full-ratchet (the harshest for founders), weighted-average broad-based (the most balanced), weighted-average narrow-based (in between).
• The adjustment is implemented either by modifying the conversion price of preferred shares or by issuing free warrants (BSA) to the protected investor.
• The 2024-2026 market standard in France for Series A is weighted-average broad-based, often softened by carve-outs (BSPCE, free shares, SAFE conversion).

In a financing round, the investor buys preferred shares at a price per share P0 reflecting the agreed pre-money valuation. If, at the next round, the new price per share P1 is lower than P0, the prior investor effectively "overpaid". Anti-dilution restores part of that overvaluation by allocating additional shares without further consideration.

Investors require it for three reasons:

• Aligning their entry with the valuation eventually validated by the market;
• Disciplining management around the trajectory it commits to;
• Securing IRR in adverse scenarios.

In France, anti-dilution is typically implemented through:

• The issuance of free warrants (BSA — bons de souscription d'actions) allocated to the protected investor, exercisable at par value, under Articles L. 228-91 et seq. of the French Commercial Code;
• Or a ratchet mechanism embedded in the company's by-laws and the terms of the preferred share class (under Articles L. 228-11 et seq.).

The operation requires an extraordinary general meeting, with compliance with the rules on suppression of the preferential subscription right (DPS) in favour of an identified category (Article L. 225-138). A contributions auditor or an issuance auditor may be required depending on the structure.

Under a full-ratchet clause, the conversion price of preferred shares is purely and simply aligned with the new round's price, as if the original investor had always paid that lower price.

Formula: adjusted conversion price = P1 (new round price)

Consequence: the investor receives as many additional shares as needed for the average per-share price (at constant total invested) to equal P1. The dilution is entirely borne by other shareholders — primarily founders and holders of BSPCE / common shares.

Full-ratchet is now considered aggressive and atypical in the European market: it is rare for a venture fund to secure it in a standard Series A, but it may resurface in distressed bridges or in late-stage down-round deals.

Weighted-average adjusts the conversion price taking into account the size of the new round, not just the price.

General formula: Padjusted = P0 × (A + B) / (A + C)

Where:

• A = shares outstanding before the dilutive issuance;
• B = shares that would have been issued at P0 for the amount raised;
• C = shares actually issued at P1.

The smaller the dilutive issuance relative to existing capital, the smaller the adjustment. This is the most balanced mechanic for founders.

The broad-based vs narrow-based distinction lies in the definition of A:

The French VC market standard for 2025-2026 is weighted-average broad-based. A narrow-based drafting must be expressly negotiated down.

Pedagogical assumptions:

• Series A pre-money: EUR 12m; raise EUR 3m; post-money EUR 15m; P0 = EUR 10/share.
• Pre-money capital: 1,200,000 common shares (founders) + 100,000 BSPCE outstanding.
• Series A: 300,000 preferred shares issued at EUR 10.
• 18 months later, Series B down-round: pre-money EUR 9m; raise EUR 3m; P1 = EUR 5/share.

Adjustment computation:

Reading: between full-ratchet and weighted-average broad-based, founders' equity moves by roughly 12 points in this example. That is the gap between keeping or losing post-Series B control.

This example is purely pedagogical. Real parameters (carve-outs, price floor, protection duration) materially change the outcome.

Our role at pre-term-sheet modelling is not to negotiate the clause in the lawyer's place — it is to simulate impact across scenarios: -20% down-round, -50% down-round, dilutive bridge, conversion of accumulated SAFEs. Too many founders sign without that simulation. Anti-dilution rarely is the worst clause in isolation, but its interaction with liquidation preference (especially 1× participating) can flip a decent exit into a negative one for founders.

Three frequent traps:

1. Missing carve-outs: without an explicit exclusion for BSPCE, free shares and SAFE conversions, anti-dilution applies to issuances that have nothing to do with a down-round.
2. Cumulative effect: when several rounds enjoy anti-dilution, adjustments stack across subsequent rounds. Without a cap, founder equity erosion becomes exponential.
3. Missing pay-to-play: without a clause forcing the protected investor to participate pro rata in subsequent rounds to retain anti-dilution, an investor can disengage while keeping the protection.

• Reject full-ratchet save in exceptional cases of very short duration (e.g. bridge < 6 months).
• Set weighted-average broad-based as the default ask.
• Negotiate explicit carve-outs: BSPCE/free shares within an approved pool, SAFE conversion, board-approved strategic issuances.
• Include a sunset clause: anti-dilution falls away after a defined event (Series C above EUR Xm, IPO, expiry of N years).
• Insist on a pay-to-play linked to the protection.

• Tight VC market: 2024-2026 conditions have re-opened the door to harsher investor-side clauses. Heightened vigilance on term sheets from funds in pre-fundraising mode.
• Interaction with SAFEs: SAFEs accumulated since 2020-2022 are converting at Series A at sometimes very low prices. Quantify their impact within anti-dilution simulations.
• AMF and disclosure: above certain thresholds, the AMF monitors securities operations of unlisted issuers. Statutory amendments tied to anti-dilution must be documented rigorously.
• Accounting: IFRS 2 and French GAAP require specific analysis of ratchet warrant valuation, with possible P&L impact.