Deal Terms
Down Round
A funding round where a startup raises capital at a lower valuation than its previous round, triggering dilution and anti-dilution provisions.
A down round occurs when a startup raises new capital at a per-share price lower than the previous round's price. This typically happens when a company misses growth targets, market conditions deteriorate, or the previous round was priced too aggressively. Down rounds have cascading effects: existing preferred stockholders trigger anti-dilution protections requiring additional shares, employee options become underwater (worth nothing), morale suffers, and the company's reputation with future investors takes a hit. Many high-profile companies have survived down rounds — Square, Foursquare, and Box all had down rounds before successful outcomes. A structured down round with supportive investors is far better than running out of cash.