Anti-Dilution Waiver
For Informational Purposes Only
Waiver of Anti-Dilution Adjustment Rights for Preferred Stockholders
Updated with 2025–2026 QSBS, Digital Equity & Emerging Provisions
What This Document Does
An anti-dilution waiver is used when a company needs to issue new securities at a price below the conversion price of its existing preferred stock. Without a waiver, that issuance would automatically trigger an anti-dilution adjustment — reducing the conversion price and giving preferred stockholders more common shares upon conversion. This template allows preferred stockholders to voluntarily waive that adjustment for a specific transaction, keeping the conversion price and conversion ratio unchanged.
The waiver is narrowly scoped by design. It applies only to the specific issuance described in the document and explicitly preserves anti-dilution rights for all future issuances. It includes a detailed dilution impact analysis table so that waiving investors can see exactly what they are giving up, a conditions section that protects investors if the transaction terms change materially, and a most-favored-waiver covenant ensuring no other investor gets better terms.
Why Startups Need This
Down rounds and bridge financings are a reality of startup life. When a company needs to raise capital at a valuation below its last round, the anti-dilution provisions in its charter create a mechanical problem: existing preferred stockholders would receive additional shares, diluting the founders and the new investors, and often making the economics of the new round unworkable. The new investors may refuse to invest unless the existing preferred holders agree to waive their anti-dilution adjustment.
This creates a negotiation. The existing preferred holders have leverage — their consent is required — and they may condition the waiver on receiving participation rights in the new round, board representation, additional information rights, or other concessions. A well-drafted waiver protects both sides: the company gets the flexibility to close its financing, and the investors get clear documentation of what they waived, what they preserved, and what they received in return. Without a formal waiver, disputes about whether the anti-dilution adjustment was properly calculated or validly waived can surface months or years later during due diligence for a subsequent round or exit.
Key Provisions
Narrowly Scoped Waiver
The waiver applies only to the specific issuance described in the document. It explicitly preserves anti-dilution rights for all future issuances, any repricing of the new securities, and all other rights under the charter and investor agreements. This prevents the waiver from being interpreted as a broad surrender of investor protections.
Triggering Issuance Detail Table
A structured table documents the exact parameters of the issuance that would trigger the anti-dilution adjustment: type of securities, number of shares, issuance price, current conversion price, what the adjusted price would be absent the waiver, the anti-dilution mechanism being waived, and the identity of the purchasers. This level of specificity eliminates ambiguity and provides a clear record for future due diligence.
Dilution Impact Analysis
The template requires the company to provide a side-by-side comparison showing the economic impact of the waiver: conversion price, as-converted shares, ownership percentage, and liquidation preference — each shown pre-issuance, post-issuance with the waiver, and post-issuance without the waiver. This ensures investors make an informed decision with full visibility into what they are giving up.
Conditions to Effectiveness
The waiver is not a blank check. It includes conditions that must be satisfied before it takes effect: the issuance must occur on substantially the terms described, within a defined time window (90–180 days), and the company must deliver copies of the executed transaction documents. Optional conditions include requiring a current 409A valuation, providing participation rights to the waiving investors, and a no-material-adverse-change requirement.
Most Favored Waiver Covenant
If the company obtains an anti-dilution waiver from any other preferred holder on more favorable terms — additional consideration, narrower scope, or participation rights — the company must offer those same terms to every waiving investor. This prevents selective treatment and ensures all investors in the same series are treated equitably.
Dual-Side Representations
Both the waiving investors and the company make representations. Investors confirm ownership, authority, and informed consent. The company confirms board authorization, good-faith pricing, disclosure of material information, and delivery of the current cap table. These representations create accountability on both sides and give investors recourse if the company misrepresented the terms or impact of the transaction.
Emerging Provisions (2025–2026)
QSBS Preservation
The template includes a representation from the company that the triggering issuance and the waiver itself will not adversely affect the qualification of company stock as qualified small business stock under Section 1202 of the Internal Revenue Code. Given the potential for 100% capital gains exclusion on qualifying stock held for five years, QSBS preservation has become a material consideration in every equity transaction, including anti-dilution waivers where changes to conversion ratios could theoretically affect holding period or basis calculations.
Digital Equity Records (OISP/DSP)
For companies using digital cap table platforms or blockchain-based equity management systems, the template requires the company to update digital records to reflect the unchanged conversion price within five business days and provide confirmation to investors. As more startups adopt digital securities infrastructure under the emerging OISP and DSP frameworks, maintaining accurate digital records of waiver events has become an operational necessity.
AI-Assisted Valuation Disclosure
When the issuance price of the new securities was determined using AI-based valuation tools or machine learning models, the template requires disclosure of this fact to the waiving investors. This transparency provision reflects the growing use of AI in startup valuations and the importance of investors understanding the methodology behind pricing decisions that directly affect their economic rights.
How to Use This Template
Step 1: Identify the triggering issuance — the new securities being issued at a price below the current conversion price of existing preferred stock. Gather the specific terms: number of shares, price per share, and identity of the purchasers.
Step 2: Review the anti-dilution provisions in your charter to determine the applicable mechanism (broad-based weighted average, full ratchet, or narrow-based weighted average) and calculate what the adjusted conversion price would be absent the waiver.
Step 3: Complete the triggering issuance detail table in Section 2 and the dilution impact analysis table in Section 5. Investors need to see these numbers before signing.
Step 4: Determine the consent threshold — check your charter and investor agreements for the percentage of preferred stockholders required to waive anti-dilution rights (typically a majority or supermajority of the affected series).
Step 5: Negotiate any conditions or consideration — participation rights, information rights, or other terms that the waiving investors require in exchange for the waiver. Include these in Section 4.
Step 6: Circulate the completed waiver to all preferred stockholders whose consent is required. Have your legal counsel review the waiver in connection with the governing documents before circulation.
Related Forms
Disclaimer: This anti-dilution waiver template is provided by Montague Law for informational and educational purposes only and does not constitute legal advice. An anti-dilution waiver has significant economic consequences for preferred stockholders and must be tailored to the specific terms of the triggering issuance, the anti-dilution mechanism in the company’s charter, and the consent thresholds in the governing documents. Use of this template does not create an attorney-client relationship. For legal assistance with anti-dilution waivers, venture financing, or corporate governance, contact john@montague.law.