Down Round Impact Calculator
Model a down round across full ratchet, broad-based, and narrow-based weighted average anti-dilution. See the founder dilution, the cap table redraw, and how long the stake takes to recover. No signup.
Last reviewed: May 2026 · Anti-dilution mechanics, weighted-average formula
| Class | Shares before | Conversion price | Top-up shares | Shares after | Cause |
|---|---|---|---|---|---|
| Founders (common) | 6M | — | 0 | 6M | No new shares — diluted only by the enlarged total |
| Option pool | 2M | — | 1.72M | 3.72M | 8% refresh, pre-money |
| Seed Preferred | 2M | $1.00 | 0 | 2M | Issued below the new price — no adjustment |
| Series A Preferred | 4M | $2.50 | 0 | 4M | Issued below the new price — no adjustment |
| Series B Preferred | 3M | $5.00 → $4.75 | 158.2K | 3.16M | Broad-based WA re-prices Series B Preferred |
| New down-round investor | 0 | $3.10 | 2.81M | 2.81M | $8M ÷ $3.10 |
The 8% option-pool refresh is carved out of the pre-money cap table, so founders and prior investors absorb 100% of it while the incoming investor is grossed up. Pushing the refresh post-money — or splitting it — shares that dilution.
What a Down Round Actually Is
A priced round that values each share below the previous priced round is a down round. The benchmark is the price per share, not the headline valuation or the size of the raise. A company that issued Series B stock at $5.00 and then prices its next round at $3.10 has taken a 38% down round, even if the new round brings in more cash than the last one. Conversely, a small round at a higher price per share is an up round, no matter how modest the check.
Down rounds carry a second cost most founders underestimate. The new shares issued at the lower price dilute everyone — that part is obvious. Less obvious is the anti-dilution adjustment: any prior preferred stock with protection gets re-priced downward, which mints extra shares for those investors. That second wave of dilution lands entirely on common stock, which means the founders. Modeling a down round well means modeling both waves together, which is what the calculator above does on every keystroke.
How a Down Round Dilutes Founders — The Math
Down round dilution decomposes into two terms. New-money dilution comes from the shares the round issues: raise amount divided by the new price per share. An $8M round at $3.10 mints roughly 2.58M new shares, enlarging the fully diluted total. Founder share count does not change, so the founders’ percentage falls purely because the denominator grew.
The second term is anti-dilution dilution. Every protected preferred class whose original issue price sits above the new round price gets a lower conversion price, so each of its shares now converts into more than one common share. Those extra shares — the top-up — enlarge the denominator again. Founder ownership after the round is the unchanged founder share count divided by the new fully diluted total, which now includes the new investor’s shares, every anti-dilution top-up, and any option-pool refresh.
A class priced below the new round never gets re-priced — anti-dilution only ratchets the conversion price down, never up. That is why a Seed class issued at $1.00 is untouched by a $3.10 down round while a Series B class issued at $5.00 is squarely in scope. The attribution table in the tool labels exactly which class moved and which clause moved it.
Anti-Dilution Clauses: The Four Methods
The anti-dilution clause in a preferred stock charter names one of four treatments. The choice is the single biggest swing factor in founder dilution for the same down round — the Methods tab in the calculator shows all four outcomes side by side.
Full ratchet anti-dilution
Full ratchet re-prices protected preferred to the exact new round price. The conversion ratio becomes the old issue price divided by the new price — a class issued at $5.00 against a $2.50 down round gets a 2.0× ratio and doubles its converted common shares. The size of the new round is irrelevant: a single token share at the low price triggers the entire adjustment. Full ratchet is uncommon outside rescue financings, and where it appears it is the first clause to negotiate down. The calculator scores Anti-Dilution Aggressiveness lowest, and classifies the round as at least an aggressive down round, whenever full ratchet is in play.
Broad-based weighted average
Broad-based weighted average is the market default. The new conversion price is CP2 = CP1 × (A + B) ÷ (A + C): CP1 is the old conversion price, A is the fully diluted shares outstanding before the round, B is the new money divided by CP1, and C is the shares issued in the down round. "Broad-based" means A counts everything — all common, all preferred as converted, and the option pool. A large divisor keeps the conversion price from moving much, so the founder hit is a fraction of the full-ratchet hit. Most institutional term sheets start here.
Narrow-based weighted average
Narrow-based weighted average runs the identical formula but shrinks A. A narrow-based divisor counts only outstanding preferred stock and excludes common and the option pool. A smaller A makes the ratio react harder to the down-round shares, so the conversion price drops further and founders give up a few extra ownership points compared with broad-based for the same round. The broad-versus-narrow line, and the precise list of what counts in A, are negotiable — and worth negotiating.
No anti-dilution protection
With no protection, prior preferred converts one-for-one and absorbs the down round like common stock. This is unusual on institutional preferred above a small price cut — most classes carry at least broad-based weighted average — but it is common on bridge notes and SAFEs converting into the priced round. When the calculator shows no protection on a cut above 20%, it flags it as a term-sheet language check rather than a clean result.
Anti-Dilution Clause vs Anti-Dilution Protection — The Contract Language
The two phrases describe the same thing from different angles. Anti-dilution protection is the economic right an investor holds; the anti-dilution clause is the charter and term-sheet text that creates it. In a standard preferred stock charter it lives inside the conversion provisions as the "conversion price adjustment" section.
The clause carries three negotiable parts. It names the method — ratchet or weighted average. It defines the divisor — broad-based or narrow-based — if the method is weighted average. And it lists the carve-out exceptions: issuances that do not trigger the adjustment, typically the option pool, board-approved grants, shares issued for acquisitions or equipment leases, and conversions of existing convertibles. A short carve-out list means more issuances trigger the adjustment, so the carve-outs deserve the same scrutiny as the method itself.
Down Round Examples: Four Real Markdowns
The 2022–2023 correction produced a clear set of reference points across the markdown spectrum. They differ mostly in how deep the cut ran.
| Company | When | Valuation move | Cut |
|---|---|---|---|
| Klarna | Jul 2022 | $45.6B → $6.7B | −85% |
| Stripe | Mar 2023 | $95B → $50B | −47% |
| Instacart | Mar 2022 | $39B → $24B | −38% |
| Snyk | Dec 2022 | $8.5B → $7.4B | −12% |
Klarna’s 85% cut from a $45.6B mark to a $6.7B raise in July 2022 was the cycle’s most severe public markdown. Stripe’s March 2023 raise priced near $50B, down roughly 47% from its $95B 2021 peak. Instacart cut its own internal valuation to $24B from $39B in March 2022 — a 38% reduction the company applied to its 409A before any external round. Snyk’s December 2022 round at $7.4B against an $8.5B prior mark was a 12% trim, closer to a soft markdown than a crisis.
The lesson in the spread is that "down round" covers a wide range. A 12% Snyk-style trim and an 85% Klarna-style reset are both down rounds, but the founder math, the anti-dilution top-up, and the recovery window look nothing alike. The calculator’s round classification splits that range into soft markdown, down round, aggressive down round, cramdown, and recapitalization so the label matches the severity.
Down Round vs Flat Round: When the Label Changes
A flat round prices at the same price per share as the prior round. A down round prices below it. The line between them is exact — one cent under the prior price per share is technically a down round — but the practical consequence is binary. Anti-dilution protection triggers only when the new price is below a preferred class’s conversion price. A flat round leaves every conversion price untouched, so there is no top-up and no second wave of founder dilution.
That binary is why flat rounds get engineered. A company whose honest marked price would be a small down round can sometimes structure a flat round instead — trimming the raise, adding a small option-pool expansion, or accepting tighter terms — to avoid tripping the anti-dilution clauses across its entire preferred stack. Founders still dilute from the new shares in a flat round, but the cap table keeps its shape, and prior investors keep their original conversion ratios.
The Option Pool Refresh Trick
Many down-round term sheets attach an option-pool refresh — an instruction to top the unallocated employee pool back up to some target percentage. The refresh percentage is visible; the timing is where the cost hides. A pre-money refresh carves the new pool out of the pre-money cap table, which means the incoming investor is grossed up so their negotiated ownership stays intact. Founders and prior investors then absorb the entire pool. A post-money refresh sizes the pool against the post-money cap table, so the new investor carries a pro-rata share of it alongside everyone else.
The same headline percentage therefore costs founders meaningfully more pre-money than post-money. The calculator models both timings explicitly, and the Employee Pool Pain dimension in the report card applies a 20-point penalty whenever a refresh is structured pre-money. Pushing a refresh post-money, or splitting it between pre and post, is one of the cleaner negotiation wins in a down round because it changes who pays without changing the pool the team actually receives.
How Long Founders Take to Recover
A down round permanently changes the ownership split — founder percentage does not climb back without another round on better terms. What does recover is the dollar value of the stake founders still hold. The down round cut the share price; the stake regains its prior value when the share price re-passes the prior round mark.
The calculator measures that gap. At an annual share-price growth rate g, the quarters to recover are log(prior price ÷ new price) ÷ log(1 + g), multiplied by four. A 38% cut recovering at 50% annual growth re-passes the prior mark in roughly five quarters; the same cut at a conservative 25% growth rate takes closer to nine. With flat or negative growth the price never returns, and the recovery window is undefined. For founders weighing a down round against extending runway through cuts, that window — not the ownership percentage — is the honest measure of how long the damage lasts.
Frequently Asked Questions
What is a down round?
A down round is a priced funding round at a lower price per share than the company's previous priced round. If a startup raised its Series B at $5.00 per share and the next round prices at $3.10, that is a down round — a 38% price cut. The drop is what matters, not the absolute size of the raise: a $20M round at a cut price is still a down round, while a $2M round at a higher price is an up round. Because new shares are issued at the lower price, every existing shareholder is diluted, and any prior preferred stock carrying anti-dilution protection gets re-priced on top of that.
What is anti-dilution protection?
Anti-dilution protection is a right attached to preferred stock that compensates the investor when the company later issues shares at a lower price. It works by lowering the preferred share's conversion price, which increases the number of common shares each preferred share converts into. The three forms — full ratchet, broad-based weighted average, and narrow-based weighted average — differ only in how aggressively that conversion price drops. Anti-dilution protection does not touch founder common stock; founders simply absorb the extra shares as additional dilution.
What is an anti-dilution clause?
An anti-dilution clause is the specific term-sheet and charter language that grants anti-dilution protection. In a standard set of preferred stock terms it appears as the "conversion price adjustment" provision. The clause names the method (full ratchet or weighted average), defines the divisor for the weighted-average calculation (broad-based or narrow-based), and lists carve-out exceptions — shares that do not trigger the adjustment, such as the option pool, board-approved grants, and shares issued in acquisitions. The carve-out list is itself negotiable and worth reading line by line, because a narrow carve-out list means more issuances trigger the adjustment.
What is full ratchet anti-dilution?
Full ratchet is the most investor-favorable anti-dilution method. It re-prices every protected preferred share exactly to the new round's price per share, regardless of how few shares the new round actually issues. The conversion ratio becomes the old issue price divided by the new price: a class issued at $5.00 converting against a $2.50 down round gets a 2.0× conversion ratio, doubling its converted common shares. A single token down-round share at half price triggers the full adjustment. Full ratchet is rare outside rescue financings and is the first clause founders should try to negotiate down to weighted average.
What is broad-based weighted average anti-dilution?
Broad-based weighted average is the market-standard anti-dilution method. The new conversion price is CP2 = CP1 × (A + B) ÷ (A + C), where CP1 is the old conversion price, A is the fully diluted shares outstanding before the round, B is the new money divided by the old conversion price, and C is the shares actually issued in the down round. "Broad-based" means A counts everything — all common, all preferred as converted, and the option pool. Because the divisor A is large, the conversion price moves only modestly, so the founder hit is far smaller than under full ratchet. Most institutional term sheets default to this method.
What is the difference between broad-based and narrow-based weighted average?
Both use the same weighted-average formula, CP2 = CP1 × (A + B) ÷ (A + C). The only difference is what goes into A, the pre-round share count. Broad-based counts all common stock, all preferred on an as-converted basis, and the option pool — a large divisor. Narrow-based counts only outstanding preferred stock, excluding common and the option pool — a smaller divisor. A smaller A makes the (A + B) ÷ (A + C) ratio more sensitive to the down-round shares, so the conversion price drops further and founders give up a few extra ownership points for the same round. The broad-versus-narrow choice is one negotiable line in the anti-dilution clause.
How do you calculate down round dilution?
Down round dilution has two parts. First, new-money dilution: the down round issues new shares equal to the raise amount divided by the new price per share, which enlarges the total share count and shrinks every existing holder's percentage. Second, anti-dilution dilution: protected preferred classes priced above the new round get a lower conversion price and receive top-up shares, which enlarges the count further at the founders' expense. Founder ownership after the round is the founders' (unchanged) share count divided by the new fully diluted total. This calculator runs both parts plus any option-pool refresh on every input change.
What is an example of a down round?
The 2022–2023 markdown cycle produced several. Klarna raised at a $6.7B valuation in July 2022, down roughly 85% from its $45.6B mark a year earlier. Instacart cut its own internal valuation in March 2022 to $24B from $39B, a 38% drop. Stripe raised in March 2023 at about $50B, down roughly 47% from its $95B 2021 peak. Snyk took a softer markdown in December 2022, raising at $7.4B versus its $8.5B prior valuation — a 12% cut. The same down-round mechanics scale across all of them; only the price-cut percentage and the anti-dilution method change the founder math.
What is the difference between a down round and a flat round?
A flat round prices at the same price per share as the previous round — zero change. A down round prices below it, and an up round above. The distinction matters because anti-dilution protection only triggers on a down round: a flat round leaves prior preferred conversion prices untouched, so there is no top-up and no extra founder dilution beyond the new money. Founders still dilute in a flat round from the newly issued shares, but the cap table keeps its structural shape. A flat round is often used as a face-saving alternative when the true marked price would be a small down round.
Does this calculator handle the option pool refresh?
Yes. The option-pool refresh is modeled as a separate input with a pre-money or post-money timing toggle. Refreshed pre-money, the new pool is carved out of the pre-money cap table and the incoming investor is grossed up to keep their negotiated ownership intact — so founders and prior investors absorb the entire pool. Refreshed post-money, the new investor carries a pro-rata share of it. The report card's Employee Pool Pain dimension applies a 20-point penalty when a refresh is structured pre-money, because that timing choice silently doubles as a second helping of founder dilution.
Can common shareholders be wiped out in a down round?
Common holders are rarely wiped out in an ordinary down round, but they can be pushed toward single digits in a cramdown or a recapitalization. The calculator flags a cramdown when a price cut of 50% or more is layered with a pool refresh above 15%, and a recapitalization or pay-to-play when the preferred carries a 2× or higher liquidation preference and is participating. In those structures, stacked liquidation preferences sit ahead of common in any sale, so common equity can be economically near-worthless even if it still shows a percentage on the cap table. Reading the preference stack matters as much as reading the price.
How long does it take to recover founder ownership after a down round?
Founder ownership percentage does not grow back on its own — a down round permanently changes the cap table split. What recovers is the dollar value of the stake founders still hold. The calculator's recovery window measures that: at an annual share-price growth rate g, the quarters to recover equal log(prior price ÷ new price) ÷ log(1 + g), times four. A 38% price cut recovering at 50% annual growth re-passes the prior mark in roughly five quarters; the same cut at 25% growth takes closer to nine. With flat or negative growth the price never returns to the prior mark, and the recovery window is undefined.