Ratchet

A ratchet (or full ratchet anti-dilution) is the most aggressive form of anti-dilution protection. If a company issues a single share at a lower price than the investor paid, the ratchet resets the investor's entire conversion price to that lower price — regardless of how many shares were issued at the lower price. This is extremely punitive for founders: if one share is sold in a down round at a 90% discount, all of the investor's preferred converts at 10% of the original price. Full ratchets were common in the dot-com era and resurface in severe down rounds where investors have maximum leverage. They're considered a highly unfavorable, founder-hostile term. Weighted average anti-dilution is the fair market alternative.