Down Round

A financing round priced at a lower valuation, or lower price per share, than the company's previous round.

Example

A company that last raised at 2.00 a share and next raises at 1.20 a share has completed a down round.

Important

A down round often triggers anti-dilution provisions for earlier investors, which can materially increase their share count at the expense of common and founder shares.

Related terms

• Anti-Dilution Provision — A contractual term that adjusts an earlier investor's conversion price downward if a later round prices shares lower, protecting them from a down round's effect on their ownership.
• Pre-Money Valuation — A company's agreed value immediately before a financing round's new money is added.
• Dilution — The reduction in your percentage ownership of a company when it issues new shares to someone else.

Lessons that explain it

• Your reputation is built in the difficult moments — An investor's reputation is formed mostly by behaviour when companies struggle - down rounds, missed plans, founder departures. Founders and co-investors check it, and it shapes future access. (9 min)
• A smaller slice of a much bigger company is usually the good outcome — Each funding round reduces existing holders' percentage. Dilution is not a loss in itself; it becomes one when the company's value does not rise enough to compensate, as in a down round. (12 min)
• Adding to winners at higher prices often beats rescuing losers at lower ones — Follow-on capital usually has a better expected result in companies with strong evidence, even at higher prices, than in struggling companies at lower prices - though the right choice always depends on the specific evidence. (11 min)
• Ask what the bridge is a bridge to — A bridge round is short-term funding to reach a milestone or a larger round. Whether it is a sign of strength or of trouble depends on what specifically it is meant to reach, and whether anyone new is willing to fund it. (11 min)
• Cash and runway decide whether anything else gets the chance to matter — Runway - cash divided by net burn - is the single most important monitoring figure for an early company, because running out of money ends every other possibility. Fundraising time makes the real deadline earlier than it looks. (11 min)
• A paper gain is a price someone paid once, not money you have — Private positions are usually marked at the last round price, adjusted for dilution. That mark is an estimate that can lag reality, and only a sale or distribution turns it into cash. (10 min)

All 578 terms in the Investing glossary