How standard clauses can quietly erode your cap table — and what to do about it.
When you’re raising capital, the fine print rarely gets the spotlight. But anti-dilution provisions — often buried deep in a term sheet — can have a lasting impact on your cap table and control.
These clauses are designed to protect investors if your valuation drops in future rounds. Sounds fair, right? Sometimes. But not always.
What Is Anti-Dilution, Really?
At its core, anti-dilution protects an investor’s ownership from being diluted in a “down round” — when a future raise happens at a lower valuation than the previous one.
There are two main types:
- Full Ratchet: Converts all prior shares as if they were purchased at the new, lower price. Extremely founder-unfriendly.
- Weighted Average: Adjusts based on how many shares are being issued and at what price. More common — but still needs close scrutiny.
Where It Becomes a Problem
Anti-dilution clauses seem harmless when your company’s growing fast. But if the market turns, if timelines stretch, or if your next raise takes a valuation hit, these protections kick in — and often not in your favor.
We’ve seen:
- Founders lose significant equity overnight
- Later-stage investors renegotiating hard based on early anti-dilution terms
- Employee option pools get squeezed without warning
What to Do About It
You don’t have to accept boilerplate. Smart negotiating up front can save serious pain later on.
Here’s what we recommend:
- Push for a capped weighted average formula — it softens the blow without creating major risk for investors.
- Tie anti-dilution to milestones or timelines — not just valuation alone.
- Ask questions. Don’t let “standard terms” go unchallenged. There’s no such thing in venture.
Final Thoughts
Anti-dilution isn’t about paranoia — it’s about awareness. Founders who understand these terms early are better positioned to protect what they’ve built.
At Hartman Venture Advisors, we help founders and funds negotiate with clarity, not confusion — and we know the difference between protections that are fair and ones that quietly kill future upside.
