The Narrow-Based Weighted Average is a type of anti-dilution mechanism. It adjusts downward the price per share of the preferred stock of a previous investor due to the issuance of new preferred shares to new investor at a price lower than the price the previous investor originally received. The previous investor’s preferred stock is repriced to a weighed average of the previous price and the new price. A narrow-based ratchet uses only common stock outstanding, as opposed to all stock outstanding, in the denominator of the formula for determining the new weighted average price.
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