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Down Round Investment
Practical Law Glossary Item 3-422-1256 (Approx. 2 pages)
Glossary
Down Round Investment
A venture capital or other minority investment in which a new investor values the company at a lower enterprise value than investors in previous investment rounds. A down round investment results in:
- A new investor paying a lower price per share than previous investors.
- The issuance of a greater number of shares to the new investor than would have been issued at the previous, higher valuation of the company.
- Increased ownership dilution of existing stockholders who own common stock or common stock equivalents (such as options, warrants or convertible preferred stock or debt securities) and do not otherwise have the benefit of anti-dilution provisions.
For more on minority investments and down round anti-dilution provisions, see Practice Note, Minority Investments: Overview.