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.

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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