What is a Down Round?
A "down round" is a financing in which a company sells
shares of its capital stock at a price per share that is less than
the price per share it sold shares for in an earlier financing.
Why Does it Matter if a Company Does a Down Round?
Down rounds are frequently viewed much more harshly than flat or
up rounds – a round at $0.05 per share lower than a prior
round will carry much more negative baggage than a $0.05 up round
would have carried goodwill.
Public company stock prices fluctuate every day, often for
reasons related to general industry or economic conditions that are
not unique to a particular company, and these dips are often
characterized as "buying opportunities" for investors and
not reflective of the intrinsic value of the company. But private
companies are different for a few reasons:
