Down Round

DEFINITION of 'Down Round'

A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the company by earlier investors.

BREAKING DOWN 'Down Round'

Down rounds cause dilution of ownership for existing investors. This often means the company's founders stock or options are worth much less, or even nothing at all. Unfortunately, sometimes the only other option is going out of business. In this case down rounds are necessary and welcomed.

Down rounds are commonplace when a red hot economy turns bad. A perfect example was the dot-com crash of 2000-2001.

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RELATED FAQS
  1. What are the pros and cons of downround financing?

    Down round financing is often reflected in very negative terminology. In some cases, it can be very bad for existing shareholders. ... Read Full Answer >>
  2. What type of companies use downround financing?

    Down round financing involves selling stock to new investors at a lower price than the investors paid. Shares for the company ... Read Full Answer >>
  3. What are the differences between downround and upround financing?

    Down rounds and up rounds of financing refer to the pre-money, or pre-investment, valuation of a company prior to a round ... Read Full Answer >>
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