Broad-Based Weighted-Average
Broad-based weighted-average is the most founder-friendly variant of weighted-average anti-dilution, calculating its formula with a denominator that includes the broad fully-diluted cap table. That denominator (A) includes outstanding common, preferred on as-converted basis, outstanding options, warrants, and other convertibles, producing the smallest possible adjustment for any given down round and therefore the least dilution of common stock and founders. It is the modern venture default and the standard founders should insist on at every priced round.
The formula and the "broad-based" distinction:
- Formula: NCP = OCP x ((A + B) / (A + C))
- A in broad-based: outstanding common + preferred on as-converted basis + outstanding options + warrants + other convertibles. This is the broad fully-diluted denominator.
- A in narrow-based: outstanding common + preferred on as-converted basis only (excluding options, warrants, convertibles).
- B: consideration received in the down round divided by OCP.
- C: actual shares issued in the down round.
The mathematical intuition: larger A produces (A+B)/(A+C) closer to 1.0 (less adjustment); smaller A produces ratio further from 1.0 (more adjustment). Broad-based has larger A, so adjustments are smaller and common holders are less diluted.
Concrete example: company has 10M outstanding common, 5M preferred (as-converted), 2M outstanding options, 1M warrants. Series A conversion price was $10. Series B raises $5M at $5/share, issuing 1M shares.
- Broad-based A: 10M + 5M + 2M + 1M = 18M
- Narrow-based A: 10M + 5M = 15M
- B: $5M / $10 = 500K
- C: 1M
- Broad-based NCP: $10 x (18.5M / 19M) = $9.74
- Narrow-based NCP: $10 x (15.5M / 16M) = $9.69
The difference is small in this example but compounds in larger down rounds and in companies with larger option pools and warrant overhangs.
The 2026 standard: virtually every modern venture term sheet includes broad-based weighted-average. Narrow-based weighted-average shows up occasionally in older docs or aggressive deals; full-ratchet shows up in distressed financings. Founders should treat broad-based weighted-average as table stakes and resist any deviation. The carve-outs that matter: even within broad-based weighted-average, the standard carve-outs (exemptions from triggering anti-dilution) must be explicit: option pool issuances to employees, shares issued in M&A, shares issued in strategic partnerships, conversion of pre-existing convertibles, exercise of pre-existing warrants. Missing carve-outs can trigger anti-dilution against transactions that shouldn't trigger.
Ryan's Take
Broad-based weighted-average is the floor of acceptable anti-dilution. It's the modern default at every reputable venture firm and what founders should expect to see in every term sheet without negotiating up to it. The negotiation moves: (1) verify "broad-based" appears explicitly in the term sheet language (not just "weighted-average"); (2) verify the standard carve-outs (option pool, M&A, partnerships, prior convertibles, prior warrants) are listed explicitly in the cert language; (3) reject any deviations toward narrow-based, partial broad-based, or carve-out narrowing. The cost of getting this right is zero (it's the standard); the cost of letting it slip to narrow-based or losing carve-outs is real founder dilution at the moment you can least afford it. Read the actual cert language, not the term sheet bullets, before signing.
What founders get wrong: Reading the term sheet bullet ("weighted-average anti-dilution") and assuming it's broad-based without verifying the actual formula in the certificate of incorporation. Some less-reputable deals use weighted-average language but narrow-based math, producing larger adjustments than the founder expected. The right discipline: at signing the term sheet, confirm "broad-based" explicitly. At reviewing the certificate, confirm A in the formula includes the broad denominator (common + preferred as-converted + options + warrants + convertibles). At reviewing the carve-outs, confirm the standard exemptions are present and worded broadly.
Related: Weighted-Average Anti-Dilution · Anti-Dilution Provisions · Full-Ratchet Anti-Dilution · Preferred Stock · Fully Diluted Shares
FAQ
What is broad-based weighted-average anti-dilution?
The most founder-friendly variant of weighted-average anti-dilution, calculating the adjustment formula with a denominator (A) that includes the broad fully-diluted cap table (outstanding common, preferred on as-converted basis, outstanding options, warrants, and other convertibles). Produces the smallest anti-dilution adjustment for any given down round.
How does broad-based differ from narrow-based weighted-average?
Broad-based includes options, warrants, and convertibles in the denominator (A); narrow-based excludes them. Larger A produces smaller adjustments; broad-based therefore produces less common-stock dilution in down rounds. Modern venture standard is broad-based; narrow-based appears in older docs or aggressive deals.
What carve-outs should broad-based weighted-average include?
The standard exemptions are option pool issuances to employees, shares issued in M&A, shares issued in strategic partnerships, conversion of pre-existing convertibles, and exercise of pre-existing warrants. Without these carve-outs, anti-dilution can trigger against transactions that shouldn't trigger protection.
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