Weighted Average Ratchet
Private Equity glossary · Private Equity Fundamentals
Definition
Anti-dilution mechanism adjusting conversion price based on relative dilution.
Weighted Average Ratchet in plain English
Imagine you own 10% of a lemonade stand, but then the founders sell new shares cheaply to a new investor — suddenly your 10% shrinks to 6%. That shrinking is called "dilution," and early investors hate getting quietly watered down. A weighted average ratchet is a fairness rule baked into the contract: if new shares get sold at a lower price than what you paid, your ownership gets a partial adjustment to compensate — but only partial, sized by HOW MUCH new money came in at that lower price (that's the "weighted average" part). It's the gentler, more common cousin of a "full ratchet," which would reprice you as if you'd paid that low price on everything.
Learn these first
Practice Weighted Average Ratchet
Related Private Equity terms
Private Equity practice questions · Private Equity flashcards · Private Equity study guide