Down rounds declining

In normal times, about 10% of rounds on Carta are down rounds.

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Of course the past few years have been anything but normal. First a global pandemic (which you can see spike down round percentages in Q2 of 2020), then a startup boom where down rounds faded from view, followed by a harsh resurgence in 2023.

Thankfully, it seems as though we may be over the worst of the downturn. The down round percentage for Series A through Series D fell from Q1 to Q2 of this year. Early stages such as Seed and Series A actually peaked in down round terms early last year and have been drifting down since then.

Why does this matter?

Down rounds are a lagging signal of overexuberance. As startup fundraising returns to something more balanced, we would expect down rounds to regress back to that 10% mean.

Of course this has two implications. One - the companies that needed to take a down round have done so and are ready to move forward. Two - many companies that would have done a down simply weren't able to raise it and may be in existential trouble.

Getting back to ecosystem health requires some real pain, sadly.

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Peter Walker

Carta Insights