“Full ratchet” refers to a type of anti-dilution protection for preferred stock in the event of a down round of series financing that adjusts the number of common shares the preferred shares can be converted into based on the new share price.
This method recalculates the number of common shares that preferred stock can convert into by dividing the original price of the preferred stock purchased by the current common share price. This method does not take into account the amount of financing raised in a down round, only the price per share.
Full-ratchet anti-dilution protection is far less common in US venture financing deals than broad-based weighted-average anti-dilution protection. For more information on the frequency of this and other VC deal terms, please visit our Trends page.