SaaStr · 2024-11-30
· 550d
Understanding Ratchets in VC Term Sheets: Early vs. Late Stage Considerations
A ratchet is a VC protection clause that adjusts an investor's share price downward if a later investor pays a lower price. While rare and unfavorable in early-stage deals, ratchets become more acceptable in late-stage rounds where valuations are already established and the adjustment mechanism provides reasonable downside protection.
Metrics in this report
Example Share Price Progression
$0.10 to $1.00 to $0.50$ per share
illustrative
Series A, B, and C funding scenario showing ratchet impact
Ratchet Adjustment Range
85-90%%
typical
late-stage IPO valuation adjustments