What Is a Down Round? Anti-Dilution, Example & Calculator (2026)

Your last round valued the company at $40M. Eighteen months later, the cash is running low and the best offer values it at $24M. That's a down round. It hurts, and it usually costs more than the headline suggests. Clauses you signed in the last round can hand your earlier investors extra shares. Those shares come out of your stake and your team's. Below we explain how down round funding works, in plain English. You get 2026 data, a worked example and a free calculator.

A down round is a funding round priced lower than the round before it. In venture capital, that means new investors pay less per share than the last ones did. Everyone who bought at the old price sees their stake lose value. Investors with anti-dilution protection get extra shares, and founders and employees pay for most of them.

How does down round financing work?

Every priced round sets a price per share. Say your Series A paid $4.00 a share and the new investor will only pay $2.40. That's a down round, even if you raise more money than last time. The same price is a flat round, and a higher price is an up round. The size of the round doesn't decide it.

You'll also see it put in valuation terms. A round is a down round when its pre-money valuation is lower than the last round's post-money valuation. Our post-money valuation guide shows that maths step by step. Here we go further: who pays when the price falls, and how to avoid it.

It happens to famous companies too. Two of the best-known down rounds of the last cycle came from fintech.

The Stripe round is a useful reminder. Stripe said it didn't need the money to run the business. The cash let staff sell shares and covered the tax on their equity. So a down round isn't always a sign of a failing company. Often it means the last price was set at the top of a boom.

Anti-dilution calculator (free Excel download)

An anti-dilution calculator shows what a down round does to your cap table. You enter your shares, the price each investor paid and the terms of the new round. It works out each investor's new conversion price under the three common formulas. Then it shows who owns what afterwards. Our free Excel version takes about five minutes to fill in.

Here's what goes into the calculator, line by line. The example is a fictional SaaS startup, and we use it through the rest of this guide.

How common are down rounds in 2026?

Down rounds are rare again. In Carta's latest State of Private Markets report, 11.4% of rounds in Q1 2026 were down rounds. That's about half the 2023 peak. Law firm data agrees. Cooley counted 12.1% of its deals in Q2 2026. At Series B and later, Wilson Sonsini saw them in only about 3% of deals.

Carta tracks the priced rounds of startups that run their cap tables on its platform. Its State of Private Markets report for Q1 2026, published in May, is the latest edition. It put the down-round rate at 11.4%, back to where it was before the boom. The quarters before tell the story. From mid-2023 to early 2025, more than one round in five was a down round in seven of eight quarters. Carta calls this the hangover from the 2022 valuation reset, and says it's now over. For founders, that cuts both ways. If your numbers hold up, a down round is less likely in 2026. But when one happens, it stands out more, and investors and new hires will ask why. Deal data from the law firms Cooley and Wilson Sonsini, in the table below, points the same way. One caveat: these figures cover mostly US startups.

Why do down rounds happen?

Most down rounds happen because the last price was higher than what the company went on to deliver. Growth slows, burn stays high or a milestone slips. Sometimes the whole sector falls out of favour. And sometimes the company waits too long. When the cash runs out, it takes whatever price is on offer.

• You raised at the top of the market — prices set in a boom rarely repeat. Klarna raised its down round in July 2022, during what it called the worst stock downturn in 50 years.
• You missed the milestones the last round paid for — investors priced in growth that came late or not at all.
• Your sector fell out of favour — investors can reprice a whole category, even companies that hit their plan.
• You ran out of time — with three months of cash left, you take the offer you can get.

Investors tell us the same. For our Fundraising 2025 study, we asked 56 VCs why they say no. The top reasons were revenue growth, unit economics, burn and missed milestones. Each one is also a reason a price comes in lower. The last cause on the list, running out of time, is the one you control most.

How does anti-dilution protection work in a down round?

Anti-dilution protection gives earlier preferred investors extra shares when you later sell shares at a lower price. It lowers the price at which their preferred shares convert into common shares. Broad-based weighted average, the market standard, lowers it a little. Full ratchet drops it all the way to the new price, however small the down round.

Say you're the fictional SaaS startup from the calculator. Your Series A paid $4.00 a share. Now the best offer is $6M at $2.40 a share. Here's your cap table before the round.

Broad-based weighted average anti-dilution

This is the standard. It blends the old price with the new one, weighted by how many new shares you sell. A small round means a small adjustment. A big round at a deep discount means a bigger one. The formula looks scarier than it is.

New conversion price = old price × (A + B) ÷ (A + C).

Plug in the example and the Series A's price drops from $4.00 to $3.68. Its shares now convert into about 2.17 million common shares instead of 2 million. That's a modest top-up, and it's what most investors expect.

Full ratchet anti-dilution

Full ratchet is the harsh version. The Series A's conversion price drops straight to the new price, $2.40. So its 2 million shares convert into about 3.33 million. At the new price, those shares are worth what the Series A paid. Full ratchet hands the Series A its whole loss back, and everyone else pays for it. It doesn't care how small the down round is, either. Selling a handful of shares at the lower price can trigger the whole thing.

Narrow-based weighted average

A third version counts only shares already issued in A, and leaves out options and the pool. A smaller A means a bigger adjustment, so it's tougher on founders than broad-based. In our example the price drops to about $3.64 instead of $3.68. Here are all three side by side.

The good news is that full ratchet has almost disappeared. In the first half of 2026, Wilson Sonsini found broad-based weighted average in 98% of the rounds it worked on. Full ratchet showed up in 1%. If your documents say full ratchet, renegotiate it while times are good, not when you need the money.

One more thing the example shows. The seed investors paid $1.00, below the new price, so they get nothing extra. Anti-dilution only helps investors who paid more than the new round's price.

What does a down round do to founders, employees and the option pool?

Founders and employees usually hold common shares, and common shares have no anti-dilution protection. So they take the full price cut, and they pay for every extra share earlier investors receive. Employees also end up holding underwater options, priced above what the shares are now worth. The usual fixes are a bigger pool, new grants or a repricing.

Founders

In our example, the founders go from 55% before the round to 43.4% with weighted average. Most of that drop comes from selling a fifth of the company to the new investor. Full ratchet takes them down to 39.8%. Those last few points are the price of the clause, not the round. Our dilution calculator shows what a normal round would cost you, for comparison. Watch control too. A smaller stake can cost founders their board majority, and a new lead often asks for a seat.

Employees and underwater options

Employees get hit twice. Their stake is diluted like the founders', and their options can go underwater. Say your team's options have a strike price of $1.20, set by your last 409A valuation. After the down round, a new 409A puts the common shares at $0.70. Every option now costs more to exercise than the share is worth. People notice, and your best people have other offers.

Carta lists three ways to help.

• New grants — give key people new options at the lower strike price. PwC Israel suggests issuing them at the same time as the round.
• Cash for options — buy some options back for cash, so people get money now.
• A repricing — cancel underwater options and issue new ones with a strike price at today's value.

Our equity compensation guide explains strike prices and vesting in more detail.

The option pool

A new investor will usually want room for those grants, so expect to discuss a bigger unallocated pool. If it's created before the round, it comes out of existing shareholders, not the new money. Our term sheet guide shows how this option pool shuffle lowers your real valuation. Model it before you agree the price. The calculator has a line for new options, so you can see their effect too.

How can you avoid a down round?

Start early and buy time. We've worked with 600+ startups since 2014. The founders who do best start raising with 9–12 months of runway left. Cut burn before you have to, and talk to existing investors about a bridge early. If you still can't get your price, venture debt or a structured round can protect the headline, at a cost.

Cut burn first

Cutting costs is the one option that needs nobody's permission. Every month of runway you add is a month of progress before you price the round. Our capital efficiency guide shows how to measure what each dollar of burn buys. Do it early. Cuts made a month before the cash runs out don't change your negotiating position.

Raise a bridge from insiders

A bridge is a small round, usually from existing investors, that buys time to hit a milestone. Most use a SAFE or a convertible note, which converts at the next priced round. Because it sets no price today, it isn't a down round. The median post-seed bridge note raised $2.0M in Q2 2026 (Wilson Sonsini).

In our experience, when a raise stalls for two or three weeks, the strongest founders go back to building. They take a bridge from insiders and come back with better numbers. Our bridge round guide covers the terms. One warning: if insiders won't join, new investors will read that as a signal.

Consider venture debt

Venture debt is a loan for startups that already have investors behind them. It doesn't set a price, so it can't be a down round. But it has to be repaid, usually with interest and warrants, and covenants can bite if growth slips. Our guide to venture capital vs venture debt compares the two.

Keep the price, change the terms

A structured round keeps your headline valuation but gives the new investor extra protection. The usual one is a bigger liquidation preference, so they're paid back first, or paid more, if you sell. It looks better on paper. But PwC Israel warns it can leave common shareholders worse off than a plain down round would. Model both before you choose.

Take a flat round

Raising at the same price as last time is a flat round. Nobody gains, but nobody's anti-dilution kicks in either. Cooley counted flat rounds in 4.3% of its deals in Q2 2026.

How do you survive a down round?

Run it like any other round, only more carefully. Get a valuation and a cap table model before you discuss price. Offer existing investors the chance to join on the same terms. Get the board's approval in a clean, recorded way. Then tell your team the reason, the plan and what happens to their options, before they hear it elsewhere.

1. Model it before you negotiate — run each anti-dilution formula with the calculator above. Then get a professional valuation, so you can argue the price with evidence.
2. Get a second offer — a raise takes 35–40 investor meetings on average (Waveup DocSend data). A competing term sheet is still your best leverage, even in a down round.
3. Ask insiders to soften anti-dilution — pay-to-play is one way. Investors who join the new round keep their protection, and those who don't lose it (PwC Israel).
4. Offer everyone their pro rata — let existing investors join at the same price. DLA Piper also recommends approval by directors who aren't investing, which helps if anyone challenges the deal later.
5. Look after the team — size the pool for new grants or a repricing, and decide it before the announcement.
6. Tell people early and plainly — the team first, then customers and suppliers. Explain why the price fell and what the money buys.
7. Raise enough to get clear — aim for about 24 months of runway. Set milestones the next round will pay for.

Preparation matters most when time is short. A lithium battery company came to us needing $20M quickly to fund its first acquisition. We built the information memorandum, pitch deck, financial model and valuation behind the raise. The company secured the $20M. It went on to complete two acquisitions, and its revenue reached $1B in 2020. Read the case.

And a down round isn't the end of the story. Stripe raised at $50B in 2023, about half its 2021 price. Three years later, it ran a tender offer at $159B.