Definition
Down Round
A down round is a funding round in which a startup raises money at a lower valuation than its previous round.
A down round happens when growth slows, the market re-rates valuations, or the prior round was over-priced. It is painful: it dilutes existing holders more for the same money, can trigger anti-dilution adjustments that further hit founders and early investors, and signals trouble to the market.
During funding winters, many Indian startups that raised at frothy valuations have taken down rounds or markdowns by their investors. The opposite is an up round, while a round at the same valuation is a flat round.
Related terms
- Anti-Dilution ProvisionAn anti-dilution provision protects investors from dilution if the company later raises money at a lower price than they paid.
- Up RoundAn up round is a startup financing in which fresh capital is raised at a higher valuation than the company's previous round — a signal of momentum, investor confidence and value creation.
- Flat RoundA flat round is a funding round raised at the same valuation as the company's previous round — neither a markup nor a markdown.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.