Down Round

Definitions

A funding round where a company raises capital at a lower valuation than its previous round. Generally considered a bad signal, it dilutes existing shareholders more and can trigger anti-dilution provisions. The startup equivalent of admitting your previous valuation was aspirational.
In plain English: When a startup raises money at a lower price than last time — basically admitting the company is now worth less than investors previously thought.
Down rounds trigger pay-to-play provisions that force existing investors to participate or lose their preferred stock protections. They can also trigger anti-dilution clauses that dramatically increase investor ownership at the expense of founders and employees.
Example: 'The down round repriced the employee stock options to the new lower strike price. Small consolation — most employees' options are now underwater regardless.'
Source: mechanical consequences

1990s: Venture capitalists define a 'down round' as a funding round at a lower valuation than the previous one
2001: The dot-com crash forces widespread down rounds, devastating early employees whose options are underwater
2023: After 2021's valuation peak, a wave of down rounds normalizes the concept as the 'funding winter' takes hold