My question is in the context of a Term-sheet. I want to know what does anti-dilution preferences mean?
Anti Dilution basically protects an investor against a situation where a future round will be raised in lower price per share (lower valuation) compared to the price he received.
Basically you are guaranteeing the investor a price match if any future investor will get a better price than he did.
Technically, this is done by increasing the conversion rate of the preferred and accordingly increasing the number of shares of common stock into which a share of preferred stock converts.
There are two kinds of anti-dilution:
Weighted Average is basically milder so it's not a full price match but somewhere in between the original price and the better price the other investor received. Ratchet is the full price match.
You didn't really ask for advice but this is a term you should probably avoid. Even if you are absolutely sure there will never be a down round compared to the current round, any future investor will want to put that in as well once you agreed to do that with one investor so the bar will get higher and higher.
"Anti-dilution protection" itself doesn't mean something exact and standardized. To know it more exactly, you will have to read the full clause, and consult with a lawyer who has expertise in startup financing.
"Anti-dilution" is often used in one of three meanings: