# Down Round

## Quick Definition

A funding round where the company raises money at a lower valuation than its previous round.

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## What is a Down Round?

A down round occurs when a company raises money at a lower valuation than its previous funding round. If you raised Series A at $20M post-money and Series B prices you at $15M pre-money, that's a down round.

Down rounds signal that the company hasn't grown as expected, or that market conditions have deteriorated. They trigger anti-dilution provisions and create significant dilution for founders and employees.

## Why Down Rounds Hurt

Beyond the psychological impact, down rounds have mechanical consequences. Anti-dilution provisions give previous investors more shares. The option pool may need refreshing at the new lower price. Employee options may be underwater (strike price above current value).

## Avoiding Down Rounds

Don't raise at inflated valuations you can't grow into. Extend runway to avoid raising in bad conditions. Consider alternative financing (debt, revenue-based) to bridge to better times. If unavoidable, negotiate to minimize anti-dilution impact.

**Formula**

Down Round = New Valuation < Previous Post-Money Valuation

Dilution impact amplified by anti-dilution adjustments for previous investors.

**Example**

Down round impact:

- Series A: $10M post-money valuation
- Series B (down round): $8M pre-money valuation

**Effects:**

- New investors get more ownership per dollar
- Anti-dilution triggers for Series A investors
- Founders and employees get diluted more heavily
- Employee options may be underwater

## Related Terms

**Anti-Dilution**  
Protection that adjusts an investor's share price if the company later raises money at a lower valuation.  
**Learn more**

**Bridge Round**  
Short-term financing to extend runway until a larger funding round closes, typically from existing investors.  
**Learn more**

**Dilution**  
The reduction in ownership percentage when new shares are issued, occurring during funding rounds and equity grants.  
**Learn more**

## Learn More About Down Round

**The Real Cost of Financial Chaos: What Bad Books Cost Growing Startups**  
Bad bookkeeping costs startups more than money. Learn the hidden price of financial chaos: failed raises, missed growth, and founder burnout.  
**Read article**  
  
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