Full Ratchet
Private Credit glossary · Portfolio Management, Monitoring & Workouts
Definition
Anti-dilution mechanism resetting conversion price to the new lower issue price.
Full Ratchet in plain English
When a startup sells new shares cheaper than earlier investors paid, those earlier investors get diluted — their slice of the company shrinks in value. A 'full ratchet' is a harsh protection clause that rescues them: it retroactively re-prices their earlier investment as if they'd bought in at the new, lower price, handing them extra shares to make up the difference. Picture buying concert tickets at $100, then the venue drops the price to $40 — a full ratchet is like the venue automatically topping up your order so it's as if you'd paid $40 all along. It heavily favors the protected investor and can badly squeeze the founders and everyone else.
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