Full Definition
A down round occurs when a company raises funding at a valuation lower than its previous financing round. Down rounds signal that the company's value has decreased, which can have significant consequences for founders and early investors.
Causes of Down Rounds
- Missed growth or revenue targets
- Market downturns or sector corrections
- Increased competition reducing the company's competitive position
- Previous round was overvalued
- Running low on cash with limited leverage
Consequences
- Additional dilution for existing shareholders
- Anti-dilution provisions may trigger, further diluting founders
- Negative signal to the market and future investors
- Employee morale impact (underwater stock options)
Real-World Example
A company that raised Series B at $200M valuation raises Series C at $120M valuation — a 40% down round.
Related Terms
Protection for investors that adjusts their equity if the company raises money at a lower valuation.
The reduction in existing shareholders' ownership percentage when new shares are issued.
The estimated monetary worth of a company, determined through various methods and negotiations.
A short-term funding round to sustain a startup between two major financing rounds.
The amount of time a startup can operate before running out of cash, given its current burn rate.
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