Weighted average anti-dilution

Weighted average anti-dilution (anti-dilution en moyenne pondérée) is an investor protection mechanism adjusting the conversion price of preferred shares downward when new shares are issued at a price below the investor's reference price (down round). Unlike full ratchet (conversion price resets to the new issue price regardless of volume), weighted average takes into account the relative size of the down round — the more shares issued at the lower price, the greater the conversion price adjustment. It is more balanced than full ratchet and is the market standard in European venture capital. The "broad-based" variant includes all shares in the formula denominator; "narrow-based" includes only preference shares.

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Example: an investor holds shares with a CHF 200 conversion price. A down round issues 100,000 new shares at CHF 80 against 900,000 pre-existing shares. Broad-based weighted average new price = (900,000 × 200 + 100,000 × 80) / 1,000,000 = CHF 188. The investor's conversion price resets to CHF 188 (vs CHF 80 under full ratchet) — additional protection that partially but not fully compensates the down round, at significantly less dilution cost to founders.

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Hectelion models weighted average anti-dilution impacts and negotiates these provisions in fundraising transactions to optimise the balance between investor protection and founder dilution.