What is a down round?
A down round is a financing round in which a startup raises capital at a pre-money valuation lower than the valuation of its previous round. Down rounds dilute existing investors more severely, trigger anti-dilution adjustments to preferred stock, and signal that the company has missed expectations or that the broader market has compressed.
Legally, down rounds typically activate broad-based weighted average or full-ratchet anti-dilution mechanics in earlier preferred-stock charters, adjust conversion ratios and protective provisions. Communications to existing investors, board approvals and conflicts checks are critical.