How to Compare a Full-Ratchet Conversion Reset with a Broad-Based Weighted-Average Conversion Reset

Compare a full-ratchet conversion reset with a broad-based weighted-average reset. If the sentence only says customary, write the fraction into the articles of association — the company’s constitution — or walk.

The silent sentence has not made that choice. The protected price moves to the new lower issue price, or the sentence is a weighted-average reset only once it writes the fraction and its own A, B, and C. A customary label is neither. This draft is under the law of England and Wales. If it names the courts of Scotland or Northern Ireland, use the form for that jurisdiction.

Disclaimer: Checkory provides AI support, not legal advice. Consult a qualified lawyer for binding decisions.

Why does a customary label fail to set the conversion price?

Find the conversion price — the price at which the preference shares convert — and the sentence that can change it on a down round, a later sale at a lower price per share. That sentence is a full ratchet, a fraction with A, B, and C, or a label. Customary weighted-average is only the label. Wallin’s 21 September 2026 review says the label leaves the fraction unwritten. That is the sentence in the Brenig Badge Ltd draft of 8 October 2026, for signature on Friday 30 October 2026.

Why does a full ratchet ignore how small the cheaper issue is?

Under a full ratchet, the protected price becomes the new lower issue price, and round size does not soften it. Ashfords shows the same reset for a £500 raise and a £100,000,000 raise at £0.50 after a £1.50 subscription. The Cooley GO glossary of 10 May 2021 ignores the amount raised. The 24 January 2022 note turns $10,000 for 1,000 shares at $10 into 2,000 common shares at $5. A $1.0 million weighted-average round moves the conversion rate less than a $10.0 million round.

What does a weighted-average sentence have to write?

Write the fraction and the clause’s own A, B, and C. On the NVCA June 2022 model, the formula is CP2 = CP1 × (A + B) / (A + C). CP2 is the price after the issue, CP1 the price before, B is consideration divided by CP1, and C is the shares issued. If the clause is silent, bracket that US formula and do not treat it as agreed. Do not reuse Ashfords’ full-ratchet bonus lines as this fraction. DWF, on 18 June 2024, calls weighted average more common, because a small down round should not re-price the whole investment.

Which shares does broad-based put inside A?

Broad-based and narrow-based name the shares counted inside A. They are not a third reset. A silent broad-based label does not include the unissued pool. The NVCA typical A counts outstanding common shares, preferred counted as shares, and options as if exercised. Footnote 11 adds the reserved pool only in the most broad-based variant. A typical mistake is adding that pool to A. DWF’s narrow list is issued share capital only; its broad list adds unexercised options, convertibles, and warrants.

On the undated 1752 page, A of 10,000,000 gives $0.857 and A of 8,000,000 gives about $0.833. A 4 August 2007 note includes the reserved plan. Do not merge that 2007 list with the 2022 formula.

Which issuances sit outside the reset?

Only issuances the clause names sit outside the reset, and a split is not a pool top-up. If nothing is listed, treat the split and the pool top-up as still inside the reset. The NVCA June 2022 exceptions are conversion of this series, conversion of existing options and convertibles, a split or stock dividend, and grants under a plan approved by the board, where that approval includes a preferred director. Wallin gives a split its own proportional adjustment. An employee grant, a US 409A price, or a strategic issue is exempt only when the clause writes it.

Before you sign, is it a bonus issue or a conversion-price change?

Name a bonus issue — new shares for the holder — or a conversion-price change, or mark both open. Morrison Foerster’s October 2025 UK row uses a bonus issue rather than a conversion-ratio change, with broad-based weighted average as the BVCA default absent special situations. Cooley GO’s US path issues more common shares on conversion and does not raise the liquidation preference by that step. Do not copy that onto a UK bonus issue. The liquidation preference is a different clause.

On Wallin’s page, with no pool, a $10 series facing a $6 round becomes $8.40 (A 3,000,000, B 1,200,000, C 2,000,000) or $6 on a full ratchet. Those dollars are not this company’s price. The page’s 38.53% and 35.29% are not the preference.

Pay-to-play — loss of the reset, or a weaker class, if the investor does not buy — is separate. Fenwick, on 12 June 2020, sometimes asks for a 12–18 month sunset in a cram-down hypothetical, not a 2026 survey. Cooley, on 17 August 2026, records pay-to-play in 8.4% of 166 financings and down rounds at 12.1%, not a UK full-ratchet figure. Accept a full ratchet only with a written time limit or price floor. Do not add a minimum round size.

1. Mark the 8 October 2026 sentence as a full ratchet, a fraction with A, B, and C, or a label only. It reads: “The Investor Shares shall have customary weighted-average anti-dilution protection.” Signature is Friday 30 October 2026.
2. If it is a full ratchet, record the new lower issue price and that round size does not soften it: Ashfords’ £500 against £100,000,000, and Cooley GO’s $10 to $5.
3. If it is weighted average, write CP2 = CP1 × (A + B) / (A + C) with the clause’s A, B, and C, or bracket the NVCA June 2022 definitions as a model. B is consideration divided by CP1. C is shares issued.
4. Write which shares sit inside A, and whether the pool is in or out. The NVCA typical formula leaves the pool out. List only written exemptions, and keep a split separate from the down-round formula.
5. Name a bonus issue or a conversion-price change, or mark both open, and attach Wallin’s $8.40 against $6, labelled as his page’s figures, not as the preference.

Keep weighted average only after A, B, and C are written, or a full ratchet only where a time limit or a price floor is already written, then rewrite the sentence and the articles, or walk. The labelled illustration is not this company’s price, and the percentage is not the preference.

A price that moves with CPI or RPI is indexation, not this reset. Most-favoured-customer pricing matches another customer’s price. A SaaS true-up bills seats or usage. A right of first refusal and a right of first offer govern a share transfer. None of those resets a conversion price.

When you have marked that sentence, upload the term sheet.