Startup Dictionary
Down Round
Definition
A round of financing where investors purchase stock at a lower valuation than the preceding round.
Deep Dive
A down round occurs in startup financing when investors purchase stock at a lower valuation than the preceding investment round. This situation typically arises when a company fails to meet its growth milestones, market conditions sour, or when it urgently needs capital despite not commanding a higher valuation. For existing investors and founders, a down round means their equity is diluted at a lower price, reducing the value of their holdings and potentially triggering anti-dilution provisions for earlier investors.
Examples & Use Cases
- 1A Series B round where investors value the company at $50 million, despite a Series A valuation of $75 million
- 2A struggling biotech startup raising emergency capital at a fraction of its prior valuation to continue drug trials.
Related Terms
ValuationDilutionAnti-Dilution Provisions