Answer
**A down round occurs when a company raises capital at a lower valuation than its previous round, leading to negative consequences like employee morale issues, punitive anti-dilution clauses, and signaling market struggles [1].**
**What to do**
* Aim for a standard, 1x non-participating liquidation preference, as accepting a lower post-money valuation with clean terms is better than a higher one with harmful structure [3].
* Build a "wartime" budget and model expenses to identify cost cuts, extending your runway to 24+ months [3].
* Update your pitch narrative to emphasize resilience and capital efficiency, rather than just growth-at-all-costs [3].
* Raise enough capital for 18-24 months of runway to hit milestones and justify a valuation step-up, avoiding the need for money on bad terms [7, 8].
**Watch out for**
* Avoid "full ratchet" anti-dilution clauses, which are draconian and re-price an investor's entire investment to the new, lower round price, massively diluting founders and employees [2, 6].
* Be aware that a high valuation creates intense pressure to perform and hit aggressive growth targets, which can lead to short-term thinking [1].
**Next step:** Download the latest post-money SAFE from YC's website and read it to understand baseline terms [5].
