definition

a form of weighted average anti-dilution mechanism which includes the company’s shares on issue (including all ordinary shares to be issued upon conversion of the preference shares) but excludes shares which could be issued by converting all other options, rights, and securities, including employee share options. Using a narrow-based weighted average formula results in a lower conversion price for the holders of the preference shares than with a broad-based formula. This is less favourable to founders because, on conversion, more ordinary shares will be issued to investors, causing further dilution to ordinary shareholders.