Anti-dilution vs. non-dilution shares
Anti-dilution shares protect an investor if you raise at a lower valuation in the future (a “down round”).
- If your next funding round is at the same or a higher price per share, those shares behave like ordinary shares — the investor is diluted along with everyone else.
- But if your next round is at a lower price per share than the one they invested in, you’re agreeing to “top up” their ownership to offset that drop. That top-up can significantly dilute founders and existing shareholders.
VCs will usually require preferred shares with anti-dilution protection. In US venture deals, this is standard — especially in priced rounds — and not something you’re likely to negotiate away.
With angel investors, it’s different. Anti-dilution protection is less common at the earliest stages, and keeping your cap table simple is usually more attractive. In many cases, investors are more focused on upside (e.g., QSBS eligibility) than downside protection at this stage.
Non-dilution shares are very different — and far more problematic.
These are shares that don’t get diluted in future funding rounds.
While that might sound appealing to an investor, it creates a structural issue: when new shares are issued, everyone else is effectively giving up more equity to maintain that investor’s ownership percentage.
That dynamic tends to create friction with future investors. If new investors know that part of their investment is effectively supporting someone else’s guaranteed ownership, it can make the round harder to close.
For that reason, non-dilution provisions are extremely rare in venture-backed companies — and including them can make future fundraising significantly more difficult.
You might occasionally see requests for fixed ownership percentages in certain contexts (for example, from accelerators or university-affiliated spinouts). If that comes up, it’s worth getting advice before agreeing to anything — these terms can have long-term implications for your cap table and investor appeal.
A note on tax context (US)
In the US, tax incentives like QSBS (Qualified Small Business Stock) often play a bigger role in investor decision-making than downside protections like anti-dilution.
That’s one reason why early-stage rounds tend to prioritise simplicity and upside — rather than adding complex protections that can complicate future fundraising.
