Down round
A financing priced below the previous round's share price, triggering anti-dilution and a hard reset of the equity story.
A down round is an equity financing at a price per share below the price of the previous round. The comparison is per share, not headline valuation: a company can raise at a higher post-money and still price down if the share count grew through pools and conversions.
The direct mechanics are three. Anti-dilution provisions on existing preferred adjust conversion prices downward, shifting extra dilution onto common. New money buys more of the company per dollar, compounding that dilution. And options granted at the old fair value sit underwater, which is a retention problem precisely when retention is hardest.
The indirect mechanics often cost more. A down round resets the reference price every future negotiation anchors on, tests investor relationships (pay-to-play pressure, board renegotiations frequently ride along), and reads as a signal to employees, customers and the next fund unless the narrative is controlled: what was repriced, the market or the execution, and what the record shows.
The decision discipline is to compare the down round against its real alternatives (bridge, tranche, cost cuts extending runway to the milestone) on one axis: which path gets the company to its next value-creating proof at the least total dilution and the least damage to the people who must build it. Protecting a headline number is not on that axis.
A twelve-month milestone slip is enough to turn a planned up round into a down round, and quantum roadmaps slip more often than pitch decks admit. The alternatives have their own costs: an insider bridge defers the repricing, a milestone-tranched round shares the risk, and stacking convertibles at yesterday's cap to protect a stale headline only warehouses a bigger reset. An honest early repricing, cleanly explained by the technical record, is routinely cheaper than any of the disguises.
Series A priced shares at $2.00. Eighteen months later, Series B closes at $1.40, a 30% lower price: a down round. Series A's broad-based weighted average anti-dilution lowers its conversion price, issuing its holders more as-converted common; the founders absorb both the cheaper round's dilution and that adjustment. Employee options struck at the old, higher fair value sit underwater until the value rebuilds.
From definition to decision
Model this in your own round, scenarios, dilution and runway, in the founder workspace.