Why it matters
Weighted average anti-dilution adjusts the conversion price by a formula. The denominator matters: broad-based includes all outstanding common, preferred, options, and warrants — diluting the protection across a wider base. Narrow-based excludes options and warrants from the denominator, which makes the adjustment more aggressive. The numbers seem small per round, but compounded over multiple down rounds the difference is meaningful — often 2-4 percentage points of founder ownership in a tough cycle.
How to negotiate
Push for broad-based weighted average — this is the global market standard for primary rounds. If the firm wants narrow-based, ask why broad isn't acceptable; their answer tells you how they expect the next round to go. Carve-outs to anti-dilution should always include the option pool, employee grants, M&A consideration, and strategic licensing transactions.
Example language
How this clause typically appears in a term sheet. Read it carefully — predatory language is often buried in routine paragraphs.
The conversion price shall be adjusted in accordance with a narrow-based weighted average formula, calculated solely on the basis of issued and outstanding shares of Preferred Stock and Common Stock issued upon conversion thereof.
TURNSHEET provides intelligence, not legal advice. This page describes typical market behaviour and common negotiation tactics; your specific deal may have nuances that change the analysis. Always review your term sheet with qualified legal counsel before signing.