Down Round

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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.

INVESTOPEDIA EXPLAINS '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 >>
  4. How do you calculate shareholder equity?

    Shareholders' equity is listed on a company's balance sheet and measures its net worth. A company's shareholders' equity ... Read Full Answer >>
  5. What is the formula for calculating beta?

    Beta is a measure used in fundamental analysis to determine the volatility of an asset or portfolio in relation to the overall ... Read Full Answer >>
  6. What is the difference between derivatives and options?

    Options are one category of derivatives. Other types of derivatives include futures contracts, swaps and forward contracts. ... Read Full Answer >>
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