---
title: "Down Round"
url: "https://mahouse.world/glossary/down-round"
type: "glossary term"
topic: "Venture funding"
author: "Ihor Vlasov"
reviewed: "2026-09-20"
published: "2026-08-10"
---

# Down Round

A down round is a funding round in which a company raises money at a lower valuation than its previous round, so that existing shareholders are diluted more than they expected and earlier investors' anti-dilution rights may be triggered. It is the usual outcome for a company that raised at the top of a cycle and grew more slowly than the price assumed.

**Also known as:** Down-round financing, Flat round, Recapitalisation

## Key facts

- **Used at:** any round where the price per share is below the last one; "flat" when it is the same
- **Triggers:** anti-dilution adjustments for earlier preferred shares — weighted average in most term sheets, full ratchet in a few
- **Typical price cut in 2023–25 fintech rounds:** 30–60% from the previous valuation
- **Alternatives:** a bridge note or convertible, an inside round, a structured round at the old headline with harsher terms
- **Parties:** the company, new investors, existing investors and — most affected — founders and employees

## How a down round works in practice

A company raised €15m at a €100m post-money valuation in 2022, planning to reach €10m of revenue by 2024. It reached €5m. It has nine months of runway and needs €10m. New investors will pay a price that today's numbers support — perhaps €40m — and the round is a down round. Everyone is diluted more than the last plan assumed, and two mechanisms decide by how much.

The first is the price itself. €10m at €40m pre-money buys 20% of the company; the same money at the old valuation would have bought 9%. The second is anti-dilution. The 2022 investors' preferred shares carry a clause that adjusts their conversion price when shares are sold below what they paid: with a weighted-average clause, the adjustment reflects how much money was raised at the lower price, and moves their percentage by a point or two; with a full ratchet, their conversion price resets to the new round's price as if they had invested at it, and can hand them a majority. Founders and employees, who hold ordinary shares with no such protection, absorb all of it.

Companies avoid the word by structuring around it: a round at the old headline valuation with a 2× participating preference, a convertible note that defers the price, a bridge from insiders. Each of these is a down round in economic terms with a different name, and each adds to the preference stack that will decide what the founders receive at exit. A clean down round at an honest price, with the option pool refreshed, often leaves the team better off than a flattering structure.

## Example

A lending platform raised €15m at €100m post-money with weighted-average anti-dilution. It now raises €10m at €30m pre-money (€40m post). The new investors take 25%. The 2022 investors' conversion price falls from €10 to €8.24 per share under the weighted-average formula, lifting their stake from 15% to about 17% on the new cap table; the founders' 55% becomes 40%. Under a full ratchet the 2022 investors' conversion price would have reset to €3.75 and their stake to about 32%, leaving the founders with 28%.

## Common mistakes

- Signing a full-ratchet anti-dilution clause in the good round because "it will never apply".
- Choosing a structured round to avoid the headline, and paying for it in the preference stack at exit.
- Waiting until three months of runway remain, when the price is set by the company's need rather than its prospects.
- Forgetting the employees, whose options are now under water, and losing them.
- Not resetting the option pool, so the team that has to deliver the recovery has no stake in it.

## Related terms

- [Liquidation Preference](https://mahouse.world/glossary/liquidation-preference.md)
- [Term Sheet](https://mahouse.world/glossary/term-sheet.md)
- [Equity Value](https://mahouse.world/glossary/equity-value.md)
- [Runway](https://mahouse.world/glossary/runway.md)
- [Private Equity](https://mahouse.world/glossary/private-equity.md)
- [Secondary Market](https://mahouse.world/glossary/secondary-market.md)

— Ihor Vlasov, M&A FinTech Expert. Last reviewed 2026-09-20. https://mahouse.world/authors/ihor-vlasov