Down-Round

Category: finance

A financing round where a company raises capital at a valuation lower than its previous funding round.

A down-round is a signal of distress. It triggers massive "dilution" for early investors and founders. It also often triggers "anti-dilution" clauses in previous investor contracts, which force the company to issue *more* shares to the old investors to protect their original ownership percentage at the expense of the founders.

Common Examples

• We narrowly avoided a down-round by pivoting our business model and showing clear revenue growth to maintain our previous valuation baseline.
• A down-round is often viewed as a failure of the management team to hit the growth milestones promised to the Series-A investors.