Weighted Average Anti-dilution

Weighted average anti-dilution adjusts an investor's entry price if shares are later issued at a lower price. Unlike the strict full ratchet, the adjustment is weighted based on the size of the new round. This is the milder and more common form of protection in practice.

The formula is: the adjusted price equals the old price multiplied by the sum of existing shares plus the shares the new investment amount would buy at the old price, divided by the sum of existing shares plus the shares actually issued. If the new round is small, the adjustment is correspondingly small. That is exactly the difference from a full ratchet, which resets the entire entry price to the new level regardless of size.

Within the variant a broad and a narrow base must be distinguished: a broad base counts options and convertible instruments alongside issued shares, which softens the adjustment further and favours founders. A narrow base leaves them out. Broad-based weighted average is market standard in German venture capital. The adjustment is technically implemented in most cases through a capital increase at nominal value in favour of the protected investor.

An example: if 1,000,000 shares were previously issued at 10 euros and 200,000 shares are now issued at 5 euros, the adjusted price is around 9.17 euros, rather than the 5 euros a full ratchet would produce, assuming there are no additional options or conversion rights to include. The difference shows how much dilution founders bear under each variant.