Down-rounds occur when a company raises a new round of funding at a business valuation that is less than its valuation on a prior investment round.
While all investment rounds dilute the ownership stake of founding entrepreneurs, down-rounds are especially devastating to company founders.
What factors lead to down-rounds? Failing to reach key operating milestones or launch new products as planned; a sudden loss of customers; over-pricing prior investment rounds with friends, family members or angels; or waiting until the 11th hour before going out to raise capital to support operating needs. A change in the economic outlook or stock market slide can also affect valuations of privately-held companies.
