Down round

What is down round?

A down round is a funding round priced at a lower per-share valuation than the company's previous round. It usually signals the business missed expectations or the market cooled, and it hits harder than ordinary dilution, anti-dilution provisions can reprice earlier investors' shares, and it can dent morale and employee option value.

Worked example

Why it matters for fast-growing companies

Down rounds are painful but often better than running out of cash. The real damage comes from anti-dilution clauses that reprice earlier preferred stock, dumping extra dilution on founders and common holders. If you're facing one, understand your anti-dilution terms cold and consider a full recap over a lightly repriced round.

Related terms

• Fundraising & equityDilutionDilution is the reduction in your ownership percentage when a company issues new shares, typically in a funding round or when expanding the option pool.
• Fundraising & equityLiquidation preferenceA liquidation preference is the right of preferred shareholders to get paid back before common shareholders when a company is sold, wound down, or liquidated.
• Fundraising & equityBridge roundA bridge round is a smaller, interim financing meant to carry a company from one major round to the next, 'bridging' the gap until it hits the milestones needed to raise a larger priced round.
• Fundraising & equityPriced roundA priced round is a funding round where investors buy shares at an agreed per-share price, set by a negotiated company valuation.

Frequently asked questions