Down Round

Down Round

A down round is a financing round that is at a lower valuation than the previous round. What this means is that a new round of financing would sell more shares or units of the company for less money. For instance, a company could sell 500 of its shares in one round for $5,000, and then sell 500 of its shares in a following round for only $4,500. The stock price of a company may fluctuate over time similar to that of a publicly traded company based on a number of factors. Down rounds may occur for a number of reasons, and they may or not be due to negative performance by the company. Sometimes external factors, such as new competitors in the marketplace, or internal factors such as losing a key employee or a failure to meet certain benchmarks. Other times Venture Capital firms, companies that invest primarily in startups, may negotiate a deal with a company that includes selling off more equity at a better price than in previous rounds with other investors. Sometimes a company may have no choice but to accept a lower valuation, even when the company is more successful than before, in order to obtain additional funding needed to expand operations.