Anti-Dilution and Non-Dilution Shares

Anti-Dilution and Non-Dilution Shares ...and why you should (almost) never ever give them to investors

Anti-Dilution shares 

are shares that protect an investor against a down-round in the future. That means:

  • if your next funding round is at the same or higher valuation as this round then the shares behave just like ordinary shares, and that investor gets diluted along with all the other shareholders. 

  • but, if your new round is at a lower valuation than the round where the investor invested, then you're agreeing to top up their shareholding to compensate them. 

Giving an investor anti-dilution shares can substantially dilute the founders and the existing shareholders, so please contact SeedLegals before giving anti-dilution protection to anyone.

Non-Dilution shares

are shares that don't get diluted in the next funding round.

Every investor would love to have special shares that don't get diluted in subsequent rounds. 

But, achieving that non-dilution means you and new investors will effectively be buying shares for that investor so they can maintain their equity. And that's not something the other investors are going to be happy to do! 

So you should think very very carefully before giving anyone non-diluting shares.

But, if you really want to, you can set that up in a few clicks, you'll find that in Advanced Terms -> Non-Dilution section in your Seed Round questions on SeedLegals.

Anti-Dilution and Non-Dilution kill SEIS/EIS

Any form of anti-dilution or non-dilution protection will immediately disqualify that investor from getting SEIS or EIS, which is one reason why these are almost never given in early-stage UK funding rounds.