A clause that protects an investor's ownership percentage in the event of a down round by automatically adjusting the price at which they converted their preferred stock.
Why it matters: Broad-based weighted average is standard. 'Full ratchet' anti-dilution is predatory and effectively wipes out founders during a down round.
In practice: An early VC bought shares at $5. In a down round, new shares are sold at $2. Anti-dilution retroactively grants the early VC more shares to lower their average cost.