Anti-dilution. This is a very common provision in the VC term sheets. The purpose is to protect early stage investors from dilution in their ownership in the event of a down round, or if further investors take ownership of the company. A down round occurs when the startup raises capital at a lower pre-money valuation than it has done previously.

A company may be valued at 1.5 million, but having found it difficult to gain further investment at this level, it may lower its valuation to 1.25 million to potentially make it more attractive for new investors. This is not desirable for either the company or the current investors as it suggests that the company is not growing in line with its strategy. It may be necessary, though if there is a pressing need for a capital injection into the company.