Down round

A down round happens when the new round's price per share is lower than the price per share the previous round paid. It's a statement about per-share value, not headline valuation — a round can technically raise at a 'higher valuation' than before and still be a down round once dilution and structure (like a large option-pool top-up) are accounted for, so the honest test is always the resulting price per share, not the pre-money number quoted in the term sheet.

Why it matters beyond optics

Down rounds often trigger anti-dilution provisions in the previous round's preferred stock — broad-based weighted average is the common structure, full-ratchet is harsher and rarer — which adjust the earlier investors' conversion price downward to partially offset their loss, at the direct expense of common shareholders and founders. Foundily's engine does not model ratchet adjustments (they're a negotiated legal mechanism, not a pure math function of the round), but the underlying share-price comparison that determines whether a round is 'down' is exactly what the round-modelling and dilution calculators compute for you.

Detecting one before you sign

Compare the new round's resulting price per share (investment ÷ new investor shares, which Foundily's round modeller solves precisely, including any option-pool top-up) against the previous round's price per share. If the new number is lower, you're in a down round regardless of what the pre-money valuation headline says.

It isn't automatically fatal

Down rounds carry a stigma, but they're common in tightening markets and don't necessarily doom a company — they do, however, usually mean more dilution for founders and employees than a flat or up round of the same dollar size, both directly and through any anti-dilution ratchets that get triggered.