Anti-Dilution Law and Legal Definition

Anti-Dilution is a preferred stock term typically given to venture capital investors that protects the venture capital investor from a large reduction in ownership of a corporation. Such reduction in ownership may be due to the company’s issuance of additional shares at a price per share lower than what the venture capital investor previously paid. The benefit of anti-dilution protection for the venture capital investor is that the venture capital investor will receive a conversion adjustment based on the lower-priced issuance of stock in the future. The amount of the conversion adjustment will depend on what type of anti-dilution protection is used. It may be weighted average, broad-based weighted average, narrow-based weighted average or full ratchet.