Cram-down Round

A cram-down round is a down financing event where a company raises new capital at a significantly lower valuation than previous funding rounds, typically diluting existing shareholders' equity substantially. It’s often a distress scenario where companies prioritize survival over valuation.

Why It Happens:

• Poor financial performance.

• Market downturns.

• Liquidity crunch.

• Missed operational milestones.

Implications:

• Existing investors may see their ownership percentages reduced.

• New investors often receive preferential terms (anti-dilution protection, liquidation preferences).

• Can damage founder and early investor relationships.

Example:

A Dubai-based fintech startup valued at AED 50M in its Series A, facing liquidity issues, raises emergency funding at an AED 20M valuation in a cram-down Series B, diluting previous investors heavily.