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.

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.