Weighted ratchet average clause

Taking the previous numbers, if the downround of Round B includes a so-called weighted average clause of Investor A, the valuation at which A will get shares from Founder will be a weighted valuation.

In simple terms, it could be (4M +2.5M)/2 post-money valuation. So the blended value would be 3.25M
Taking A's 1 M, they would give him

1M / 3.25 M = 31% (lets round to 30% to make things easier)

Investor B would still invest at 2.5 M post money
which is 0.5 M / 2.5 M = 20%

Captable after Round B would look as follows

Investor A 30%
Investor B 20%
Founder 50%

So instead of loosing 35% the founder would loose 25% of his shares.

So the simple advice to entrepreneurs is: just negotiate the contract in a way that removes
any form of ratchet clauses.

Full ratchet clause

This full ratchet clause when applied in vc contracts will dilute the entrepreneur to a level which makes him simply leave the company.
How does it work ?
Valuation Round A is 4 Million post money (pre-money valuation is 3 M)
Investor A has invested 1 M for 25%
If in Round B (which is a downround) valuation valuation drops to - lets say - 2 M pre-money, and another Investor B invests 0.5M the captable will look as follows

Round A
Investor A  25%
Founder  75%

Round B
Investor A 40%
Investor B 20%
Founder 40%

So A has gained 15% doing nothing and Founder has lost 35%.

How can this happen?
The money that was invested by investor A is valued at 100% at the valution of the downround B.
So 1M/ 2.5M = 40%
Investor B just invests 0.5M at 2.5 M post money valuation.