The Narrow-Based Weighted Average is an anti-dilution adjustment method that recalculates a preferred stock conversion price in a down round using a formula that considers only certain shares (typically excluding a broad set of common-equivalent shares), resulting in stronger protection for investors than broad-based methods. In term sheet negotiations, Narrow-Based Weighted Average is more investor-favorable, and Narrow-Based Weighted Average can materially increase dilution to founders and the option pool in a down round.
