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Ratchets

A ratchet is a structure whereby the eventual equity allocations between the groups of shareholders depend on either future performance of the company or the rate of return achieved by the venture capital firm. This allows management shareholders to increase their stake if the company performs particularly well (see Valuation and milestones).

Full Ratchets

A full ratchet is an anti-dilution provision that applies the lowest sale price for any ordinary share (or equivalent) sold by the company after the issuing of an option or convertible share as being the adjusted option price or conversion price for those options or shares (see Anti-dilution (or price protection)).

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