Anti-Dilution Clause

A provision in a shareholder agreement or investment term sheet that protects an investor from the dilution of their ownership percentage if the company issues new shares at a lower valuation than the investor paid.

Anti-dilution clauses protect early investors in down rounds. For founders, agreeing to strong anti-dilution provisions can severely limit future fundraising flexibility and significantly reduce founder ownership in difficult scenarios.

An early investor holds 15% equity at a £2 million valuation. If the company later raises at a £1 million valuation (a down round) and the investor has a full ratchet anti-dilution clause, their ownership is recalculated as if they had paid the lower price, significantly reducing the founder's remaining stake.