Term sheet & cap table

Down round

A round raised at a lower price than the last one. Painful beyond the headline because of the terms it triggers.

Written byDenis VoldmanHead of Product, DealMatrix
Edited byPhilipp SakulerBusiness Development, DealMatrix
Reviewed by✓ Berthold Baurek-KarlicCEO, Venionaire Capital & DealMatrix
Business Angel of the Year 2023
Updated10.06.20264 min read

A down round is a financing round priced below the company’s previous round. It usually reflects a change in market conditions rather than a collapse in the business, since multiples move sharply with interest rates and sentiment.

The damage is felt twice. The lower price reduces everyone’s paper value, and the round triggers contractual machinery: anti-dilution clauses reprice earlier investors’ shares, and liquidation preferences mean that at a weak exit investors are paid first while common holders may receive little. Under the IPEV guidelines a stale prior-round price is not a valid fair value once conditions have shifted, which is precisely the down-round situation.

For how valuations behave through a downturn, including fire-sale and secondary discounts, see Down Rounds, Distressed and Secondary Deals.

Related

ArticleDown Rounds and Distressed DealsThe full downturn picture.GlossaryAnti-dilutionWhat a down round triggers.GlossaryLiquidation preferenceWho gets paid first.

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