Full Ratchet
Private Equity glossary · Private Equity Fundamentals
Definition
Anti-dilution mechanism resetting conversion price to the new lower issue price.
Full Ratchet in plain English
When early investors buy shares, they're promised a certain price. But if the company later hits hard times and has to sell NEW shares at a lower price, those early investors feel cheated — their stake is suddenly worth less (they got 'diluted'). A 'full ratchet' is the most aggressive protection against that: it retroactively resets the early investor's price all the way down to the new low price, as if they'd gotten that bargain all along. It's like buying concert tickets at $100, then getting a full refund down to $40 the moment the venue drops the price — great for you, brutal for the founders, because it hands the early investors a much bigger slice of the company.
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