Down Round
What is a Down Round?
A down round is a financing round in which a startup raises capital at a lower valuation than it had in its previous funding round. This situation can occur when the company has not met growth expectations, or market conditions have changed. Down rounds can dilute existing shareholders more than other funding rounds, as new investors are offered equity at a lower price.
Implications of a Down Round
- Increased Dilution: Existing shareholders’ ownership stakes may be significantly diluted.
- Negative Market Perception: A down round may signal challenges to investors or the market.
- Potential Impact on Employee Morale: Employees may feel discouraged if their stock options lose value.