Down Round

Contractual mechanisms that protect existing investors from the dilutive effects of a subsequent financing round at a lower valuation than the round in which they invested. Common forms include full ratchet anti-dilution (which adjusts the conversion price to the new lower price) and weighted average anti-dilution (which adjusts based on the relative size of the new round).

The earliest formal round of equity financing, typically used to fund product development, initial hiring, and market validation. Seed rounds are usually raised from angel investors, seed funds, or accelerators, with investment sizes ranging from tens of thousands to several million pounds.

A clause in an investment agreement that protects existing investors from ownership dilution if the company raises a subsequent round at a lower valuation (a down round). Common mechanisms include full ratchet and weighted-average anti-dilution.

Sequential rounds of venture capital financing that follow the seed stage. Series A typically funds scaling after product-market fit; Series B accelerates growth and market expansion; Series C and beyond fund further scaling, internationalisation, or pre-IPO preparation.

The valuation of a company immediately after a new funding round, calculated as the pre-money valuation plus the capital raised. Post-money valuation determines the ownership percentage that new investors receive for their investment.

The reduction in existing shareholders' ownership percentage when a company issues new shares, typically during a fundraising round. Dilution is an expected part of growth financing, but founders and early investors monitor it closely to protect their economic interest.

Short-term funding used to bridge the gap between two financing rounds or before an anticipated liquidity event. Bridge loans or convertible notes are common structures, often provided by existing investors to sustain operations until the next milestone.

A short-term debt instrument that converts into equity at a future financing round, typically at a discount to the next round's valuation. Convertible notes are commonly used in seed-stage financing because they defer the need to establish a valuation.

Flat, Up or Down: Bridge Valuation Mechanics

What is a down round and how does it affect founders?

A down round is a funding event where the company's valuation is lower than the previous round, signalling market concerns and potentially triggering anti-dilution consequences for founders.

What is anti-dilution protection?

Anti-dilution clauses protect investors if a later funding round occurs at a lower valuation (a down round), entitling them to additional shares at no extra cost.

What is a flat round and what does it signal?

A flat round closes at the same valuation as the previous round, signalling plateau in growth and often preceding a down round if growth doesn't accelerate.