{"concept_id":"ALTSS-VC-008","slug":"down-round","canonical_name":"Down Round","aliases":["down round financing"],"kind":"term","authority":"industry","facets":["TXN","VAL"],"domains":["VENTURE"],"display_title":"Down Round","search_aliases":["what is a down round","down round vs flat round","down round anti-dilution","what happens in a down round","how to tell if a round is a down round"],"one_sentence_definition":"A down round is a financing in which a company sells shares at a lower price per share than it charged in its previous round.","plain_english":"The test is price per share, not the headline valuation. A company can announce a higher post-money valuation than last time and still be doing a down round if it sells each share for less. Down rounds usually trigger contractual adjustments in favour of earlier preferred investors and dilute founders and employees heavily.","parent_concepts":["priced-round"],"child_concepts":[],"related_concepts":["anti-dilution","pay-to-play","liquidation-preference","write-down","price-of-recent-investment","inside-round","bridge-round","protective-provisions"],"comparison_concepts":[],"not_the_same_as":[{"slug":"write-down","distinction":"A write-down is a reduction in a holding's reported value; a down round is a financing event that usually causes one."},{"slug":"bridge-round","distinction":"A bridge round is interim financing, often by convertible note or simple agreement for future equity; it can be priced flat, up or down, or not priced at all."},{"slug":"inside-round","distinction":"An inside round is led and funded by existing investors; it may or may not be a down round."}],"formula_ids":["F-VC-008-round-over-round-price-change"],"worked_examples":[{"title":"Illustrative higher post-money, lower price","paragraphs":["A company's Series A sold at $2.00 per share and left it with 10,000,000 fully diluted shares, a post-money valuation of $20m. It now raises $5m at an $18m pre-money valuation. The new price is **$1.80** (a 10% decline), the company issues **2,777,778** shares, and the post-money valuation is **$23m**, higher than before. It is still a down round."],"calc":{"fn":"priced_round","inputs":{"pre_money":18000000,"investment":5000000,"pre_money_fd_shares":10000000},"expected":{"price_per_share":1.8,"new_shares":2777777.7778,"post_money":23000000,"investor_ownership":0.217391},"tol":0.01}},{"title":"Anti-dilution on the same round","paragraphs":["The 2,000,000 Series A shares carry broad-based weighted-average anti-dilution. A = 10,000,000; B = $5m / $2.00 = 2,500,000; C = 2,777,778. The Series A conversion price falls to $2.00 × 12,500,000 / 12,777,778 = **$1.9565**, so the 2,000,000 Series A shares would convert into about 2,044,444 common. Under a full ratchet the conversion price would fall to the $1.80 round price and they would convert into 2,222,222."],"calc":{"fn":"weighted_average_antidilution","inputs":{"old_price":2,"new_money":5000000,"new_shares":2777777.777778,"outstanding_fd":10000000},"expected":{"new_conversion_price":1.956522,"adjustment_factor":1.022222,"adjusted":true},"tol":0.0001}}],"sections":[{"heading":"What happens in a down round","paragraphs":["Several mechanisms are triggered or negotiated at once. Earlier preferred series may receive [anti-dilution](/glossary/anti-dilution) adjustments, unless they waive them. New investors often ask for senior or higher [liquidation preferences](/glossary/liquidation-preference). [Pay-to-play](/glossary/pay-to-play) terms may convert the preferred stock of investors who do not participate into common. The [option pool](/glossary/option-pool) is often enlarged and underwater options repriced to keep employees. Because preferred holders' consent is usually needed to create a new senior series, existing investors have leverage over the terms through [protective provisions](/glossary/protective-provisions)."]},{"heading":"Insider-led down rounds and recapitalisations","paragraphs":["When outside investors will not lead, existing investors often fund the company themselves. A deep insider-led down round that converts non-participating holders into common or issues shares at a nominal price is often called a recapitalisation or \"cram-down\". Because the insiders sit on both sides, boards commonly use procedures to reduce conflict risk, such as offering every existing holder the right to participate (a rights offering) and obtaining independent approval."]},{"heading":"Hidden down rounds","paragraphs":["Structured rounds can hold the price per share flat or higher while giving the new money terms that shift value to it: multiple or participating preferences, senior ranking, guaranteed IPO-price ratchets or warrants. Analysts adjust for these terms rather than relying on the headline price. A secondary sale of existing shares at a lower price is not a down round of the company, though it may inform valuation."]},{"heading":"Effect on fund valuations","paragraphs":["For a fund holding the company, a down round is evidence about [fair value](/glossary/fair-value), but the new price is not automatically the fair value of every class. Valuation guidance uses a recent financing as a calibration input rather than a default mark (see [price of recent investment](/glossary/price-of-recent-investment)), and a fund holding senior preferred may mark its position differently from the common or from a junior series. A down round usually leads to a [write-down](/glossary/write-down) of earlier marks, and LPs look at whether managers marked down before or only after the financing."]}],"classification_rules":[],"calculation_rules":[],"common_mistakes":["Comparing post-money valuations instead of prices per share.","Treating a flat price with richer terms as a neutral round.","Assuming a down round means the company is failing; it is often a reset that allows it to continue.","Forgetting that anti-dilution adjustments and the new round's price are solved together."],"edge_cases":[],"external_standard_mappings":[],"source_ids":["SRC-IPEV-2025","SRC-NVCA-MODEL-DOCS"],"citations":[{"source_id":"SRC-NVCA-MODEL-DOCS","pinpoint":"Certificate of Incorporation (anti-dilution, protective provisions)","supports":"Contractual consequences of issuing shares below the prior conversion price","source":{"source_id":"SRC-NVCA-MODEL-DOCS","title":"NVCA Model Legal Documents","authors":"National Venture Capital Association","publisher":"NVCA","document_type":"template","url":"https://nvca.org/model-legal-documents/","year":2026,"publication_date":"Certificate of Incorporation, Stock Purchase Agreement, Investors' Rights Agreement updated October 2025; Voting Agreement June 2026; ROFR and Co-Sale April 2026; Management Rights Letter and Indemnification Agreement July 2020","jurisdiction":"US","status":"Current","last_verified":"2026-10-01"}},{"source_id":"SRC-IPEV-2025","pinpoint":"Sec. I 3.10 Calibrating to the Price of a Recent Investment, p. 38","supports":"A round price is a calibration input, not automatically fair value for each class","source":{"source_id":"SRC-IPEV-2025","title":"International Private Equity and Venture Capital Valuation Guidelines (2025 edition)","authors":"IPEV Board","publisher":"IPEV","document_type":"standard","url":"https://www.privateequityvaluation.com/Portals/0/Documents/Guidelines/2025%20IPEV%20Valuation%20Guidelines.pdf","year":2025,"publication_date":"Published 11 December 2025; in effect for quarterly reporting periods beginning on or after 1 April 2026; early adoption encouraged","jurisdiction":"intl","status":"Current; supersedes the December 2022 edition","last_verified":"2026-10-01"}}],"faq":[{"q":"Is a flat round a down round?","a":"Not by price per share. If the new money gets materially better terms, such as a higher or senior preference, the round can be economically down."},{"q":"Why do down rounds dilute founders so much?","a":"The lower price means more new shares for the same money, anti-dilution adjustments add shares for earlier preferred holders, and pool increases are usually borne by existing holders."}],"seo":{},"first_published":"2026-01-08","last_reviewed":"2026-10-01","last_modified":"2026-10-01","content_version":"2.0.0","url":"https://altss.com/glossary/down-round","json_url":"https://altss.com/reference/concepts/down-round.json","title":"Down Round","formulas":[{"formula_id":"F-VC-008-round-over-round-price-change","concept_id":"ALTSS-VC-008","label":"Round-over-round price change","plain":"Price change = new round price per share / prior round price per share − 1","latex":"\\Delta p=\\frac{p_{\\mathrm{new}}}{p_{\\mathrm{prior}}}-1","variables":[{"symbol":"p_new","meaning":"price per share of the new series"},{"symbol":"p_prior","meaning":"original issue price of the most recent prior series"}],"convention_note":"Down round if the change is negative, flat round if zero, up round if positive. Compare like with like: adjust for stock splits, and treat a nominally flat round with materially richer terms (higher preference multiple, seniority, warrants) as economically down."}],"sources":[{"source_id":"SRC-IPEV-2025","title":"International Private Equity and Venture Capital Valuation Guidelines (2025 edition)","authors":"IPEV Board","publisher":"IPEV","document_type":"standard","url":"https://www.privateequityvaluation.com/Portals/0/Documents/Guidelines/2025%20IPEV%20Valuation%20Guidelines.pdf","year":2025,"publication_date":"Published 11 December 2025; in effect for quarterly reporting periods beginning on or after 1 April 2026; early adoption encouraged","jurisdiction":"intl","status":"Current; supersedes the December 2022 edition","last_verified":"2026-10-01"},{"source_id":"SRC-NVCA-MODEL-DOCS","title":"NVCA Model Legal Documents","authors":"National Venture Capital Association","publisher":"NVCA","document_type":"template","url":"https://nvca.org/model-legal-documents/","year":2026,"publication_date":"Certificate of Incorporation, Stock Purchase Agreement, Investors' Rights Agreement updated October 2025; Voting Agreement June 2026; ROFR and Co-Sale April 2026; Management Rights Letter and Indemnification Agreement July 2020","jurisdiction":"US","status":"Current","last_verified":"2026-10-01"}]}