A warrant issued in one round does not simply sit still while the company raises the next one. What happens depends entirely on the anti-dilution wording in the original agreement, and whether the new round is priced above, at, or below the level the warrant was issued against. Get the wording loose and you find out what it actually meant at the worst possible moment, mid-negotiation with a new investor who has just asked to see the cap table. This article covers dilution and adjustment specifically, not the exercise mechanics themselves, which our companion piece on how a warrant actually gets exercised already covers. Specialist review is recommended before you rely on any warrant, and that applies as much to the anti-dilution clause as to anything else in the document.
> Quick answer: Anti-dilution provisions adjust either the strike price, the number of shares, or both, if the company issues new shares in ways that would otherwise erode the warrant holder's economic position. A down round, where new shares are priced lower than before, is the scenario these provisions are actually built for, and different anti-dilution formulas produce very different outcomes on the same facts. An unexercised warrant still appears on a fully diluted cap table, and an investor doing diligence will ask about it whether or not it has been used. This is general information, correct as at September 2026, not legal or financial advice.
What anti-dilution provisions are actually for
Anti-dilution provisions exist to protect the economic value of a warrant when the company issues shares in a way that would otherwise quietly erode it. Without any protection, a company could raise a large new round at a much lower valuation, and the warrant holder's fixed strike price would suddenly look expensive relative to the new shares, while the holder's percentage stake shrinks against a bigger pie regardless of price. The clause exists to decide, in advance, whether and how the strike price or share number moves to compensate. Separately from price protection, most warrant instruments also adjust mechanically for changes to the share capital itself, such as a sub-division, consolidation or bonus issue, so that the holder's entitlement keeps pace with the shares it refers to. Those capital adjustments are usually uncontroversial; it is the price-based protection below that decides who absorbs a down round.
Two broad approaches turn up in practice. A full ratchet adjusts the strike price down to match the new, lower issue price entirely, regardless of how many shares were issued at that price. A weighted average adjustment moves the strike price by a formula that accounts for both the new price and the number of shares issued at it, producing a smaller, more proportionate adjustment. The two produce materially different outcomes on the same facts, which is exactly why the choice between them needs to be made deliberately at issue, not left to whichever wording a generic template happened to include.
What happens on a down round specifically
A down round is a new funding round priced lower than the company was previously valued. This is the scenario anti-dilution provisions are built to respond to, because it is where the warrant holder's position is genuinely at risk of erosion. If the agreement has a working anti-dilution clause, the down round triggers the adjustment mechanism: the strike price moves, the number of shares covered moves, or both, following whichever formula the agreement specifies.
If the agreement's anti-dilution wording is vague, undefined, or simply absent, the down round happens and the warrant's terms do not move at all. The holder is left holding a right to buy shares at a price that may now sit above where new investors are buying in, which can make the warrant effectively worthless to exercise even though it remains technically live until expiry. This is one of the most expensive mistakes in warrant drafting: a clause that looked harmless when there was nothing yet to adjust, discovered to be inadequate only once a real down round has actually happened.
Anti-dilution outcomes on a down round
| Anti-dilution approach | What adjusts on a down round | Practical effect |
|---|---|---|
| No anti-dilution clause | Nothing | Holder's strike price may sit above the new round price, warrant loses practical value |
| Full ratchet | Strike price moves fully to match the new, lower price | Strongest protection for the holder, most dilutive to existing shareholders |
| Weighted average (broad or narrow base) | Strike price moves proportionately, based on price and volume of new shares | More common middle ground, protects the holder without fully matching the ratchet outcome |
| Share number adjustment | Number of shares covered increases instead of, or alongside, price | Keeps the holder's economic exposure roughly level without changing the price paid per share |
How a warrant appears on a cap table an investor is reviewing
A warrant does not need to be exercised to matter on a cap table. Any investor reviewing the company properly will ask to see the fully diluted position, which includes every outstanding option, warrant and convertible instrument, whether or not it has actually converted into shares yet. A warrant sitting unexercised in a drawer is still a claim on future equity, and omitting it from a cap table presented to a new investor is the kind of gap that gets found in diligence and costs far more credibility than it would have cost to disclose upfront.
This is exactly why a warrant, once issued, belongs in the same organised record as the rest of the company's capital structure, alongside the founder agreement and any shareholders' resolutions authorising past allotments. A due diligence request will typically ask for every outstanding warrant, its strike price, its exercise window and any anti-dilution history, and being able to answer that request with a complete, organised file is the difference between a smooth round and a stalled one.
Why unexercised warrants surface in diligence
An investor doing diligence on a company raising its next round is, in effect, asking one question repeatedly in different forms: what claims exist on this company's future equity that are not yet reflected in the current shareholder register. A warrant is precisely that kind of claim. It does not show up as a shareholding today, but it represents a right that could dilute every existing shareholder the moment it is exercised. A due diligence request list will typically ask specifically for outstanding warrants and their terms, and a founder who cannot immediately produce the original agreement, its anti-dilution history and its current strike price looks disorganised at exactly the point where organisation matters most.
Being ready for that question means keeping the warrant's full history in one place: the original agreement, any prior anti-dilution adjustments that have already been triggered, and the current effective strike price and share number after those adjustments. A warrant that has already survived one down round without its terms being formally recalculated is a genuine problem waiting to surface in someone else's diligence.
Getting the wording checked before it is tested
Anti-dilution mechanics read as dry, technical clauses at the point of drafting, which is exactly why they get less attention than the headline strike price and share number covered in our warrant agreement template guide. That is a mistake. The anti-dilution clause is the part of the agreement most likely to be tested years after signing, often under time pressure during an active fundraise, and the part most expensive to get wrong after the fact. Treat any warrant template, including one assembled from vetted clauses through drafting a warrant agreement with AI rather than a chatbot inventing the formula, as a starting point, and get the specific anti-dilution formula checked by a specialist against how you actually expect the company's future rounds to be structured. Our assembled clauses versus invented ones guide explains why that distinction matters most for this exact clause.
Keeping the record straight as rounds happen
Every time a new round triggers an anti-dilution adjustment, record the recalculated strike price and share number formally, rather than leaving the original document unmarked and trusting someone to redo the maths correctly years later. Keep the original warrant, the round documents that triggered any adjustment, and the recalculated terms together in the same room, so a future diligence request can be answered from one organised file rather than reconstructed from memory. Page-by-page analytics show which pages the holder opened before signing. They record viewing, not understanding, so the formula itself has to be stated clearly enough that nobody needs to argue about what it meant.
Where a later document, an adjustment notice or a restated warrant, needs signing, e-signature works for most commercial documents in England and Wales, though check whether the specific document should be executed as a deed given the same exceptions that apply to the original warrant. Our guide on getting reminded before a contract expires is worth pairing with the warrant's expiry date, since a recalculated strike price does not extend the window it must be exercised within.
This guide is written for England and Wales, where the Companies Act 2006 governs the share allotment that follows any adjustment. If your warrant sits under another jurisdiction's company law, the anti-dilution mechanism itself, full ratchet, weighted average, or share number adjustment, is the same set of choices, though the statutory detail around implementation will differ.
Frequently asked questions
What is a down round and why does it matter for a warrant?
A down round is a new funding round priced lower than the company's previous valuation. It matters for a warrant because it is the scenario anti-dilution provisions are built to respond to, adjusting the strike price or share number so the holder's position is not quietly eroded by the lower price.
What is the difference between full ratchet and weighted average anti-dilution?
Full ratchet moves the strike price down to match the new, lower price entirely, regardless of how many shares were issued at it. Weighted average moves the price proportionately, based on both the new price and the volume of shares issued, producing a smaller adjustment. The two can produce very different outcomes on identical facts.
Does an unexercised warrant show up on a cap table?
Yes, on a fully diluted cap table, which any serious investor will ask to see. A warrant is a claim on future equity even before it is exercised, and omitting it from the disclosed capital structure is a gap diligence is designed to find.
What happens if a warrant has no anti-dilution clause at all?
Nothing adjusts automatically. If the company later raises a round at a lower price, the holder's strike price stays fixed at the original level, which can make exercising the warrant unattractive or effectively worthless, even though the instrument remains technically live until expiry.
Should anti-dilution wording be reviewed before a warrant is issued, not just before it is exercised?
Yes. The clause is set once at issue and then tested, often years later, under the pressure of an active fundraise. Getting a specialist to check the specific formula against how future rounds are actually likely to be structured is worth doing before the warrant is signed, not after a down round has already happened.
Draft your warrant agreement, and keep it until exercise
Assemble a warrant agreement with the anti-dilution approach stated clearly, drafted from vetted England and Wales clauses, then keep the instrument and every later adjustment in one organised file ready for the next diligence request. The free tier gives three rooms and twenty-five active links, forever, with no card required; the AI drafter and e-signature start on Pro at £19 a month. Warrants are consequential, so treat any draft as a starting point and get specialist review before issue. Start for free.
This article is general information, not legal or financial advice. Anti-dilution mechanics and their effect on your cap table involve company law and tax consequences, and every warrant deserves review by a qualified adviser before it is relied on.
Sources
- Allotment under a warrant after an adjustment, and why no fresh authority to allot is needed: Companies Act 2006, s.549(3), https://www.legislation.gov.uk/ukpga/2006/46/section/549
- Shareholder authority for allotments where required, written resolutions: Companies Act 2006, Part 13, Chapter 2, https://www.legislation.gov.uk/ukpga/2006/46/part/13/chapter/2
- Electronic signatures, execution of deeds and their formalities in England and Wales: Law Commission, Electronic execution of documents (2019), https://lawcom.gov.uk/project/electronic-execution-of-documents/ ; HM Land Registry Practice Guide 82, https://www.gov.uk/government/publications/electronic-signatures-accepted-by-hm-land-registry-pg82