Rachet

A rachet provision provides anti-dilution protection to an investor. When a company raises new equity capital such as venture capital, with a Full Rachet provision an investor has the option to maintain the ownership as the initial investment. For example, an investor who paid $10 per share for a 20% stake in a private company would get more shares in order to maintain that stake if a subsequent round of financing were to come through at $8 per share. The earlier round investor would have the right to convert his shares at the $8 per share price as part of the Down Round, increasing his shares by 25% and maintaining his 20% ownership stake in the private company.