What is a down round?

A down round is a funding round for a startup at a lower valuation than its previous round.

In practice

The comparison is usually on price per share or on the new pre-money valuation against the last post-money. Anti-dilution provisions in earlier preferred stock, typically broad-based weighted average and sometimes full ratchet, adjust those investors’ conversion prices. Investors may also seek pay-to-play terms. Often confused with a flat round, at the same valuation, and a bridge round, an interim financing that may be priced up or down.

An example

Round numbers, not a real fund

Say a startup was valued at $500 million in its last round and raises new money at $350 million. That is a down round.

Why it matters

It dilutes earlier investors and founders, and often triggers protections written into earlier deals.

A definition, not advice; where usage varies the entry says so. Something wrong? Tell the desk.

Related terms

Fair valueFair value is what an asset would fetch in an orderly sale between willing buyers and sellers on the measurement day. Accounting standards require funds to report it.
Enterprise valueEnterprise value is the price of a whole business: the value of its equity plus its net debt, typically. It is what a buyer pays for the company, debt included.
NAVNet asset value, or NAV, is a fund’s assets minus its liabilities. In private funds it is usually reported quarterly and rests on the manager’s valuations.
TVPITVPI, total value to paid-in capital, adds the cash a fund has already returned to the value it still holds, then divides by the money investors paid in.

The terms, in the news each morning.

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