The down-round conversation: how to time it

At a glance

• The down-round conversation is almost always delayed by two quarters past when it should have happened. The delay is rarely about economics. It is about who is willing to raise the topic first.
• The window opens when the raise has been in process for four months and the IOIs are softening. Waiting longer costs more than the reset does.
• The best conversation is led by the lead investor, grounded in a one-page restated view of the company, and resolved inside three board calls.

Why does the down-round conversation get delayed?

In a stalling post-Series A or Series B, the down-round conversation almost always happens six months after the window first opens. The delay is not a disagreement about the economics. Everyone in the room can see the comps. The delay is about who is willing to raise the topic first.

• The CEO does not want to raise it because acknowledging it feels like surrender and because it exposes them to dilution they have been quietly hoping to avoid.
• The lead investor does not want to raise it because it changes the mark on the fund, creates conversations with their LPs that they would rather not have right now, and can trigger anti-dilution provisions that other investors in the cap table may not want to absorb.
• The independent director does not want to raise it because they are not the party who should lead the conversation, even though they are often the first to see the need.
• The board as a whole tends to collectively wait for a signal from the lead that the lead is ready to talk about it.

In the meantime, the raise continues in process for another quarter, the burn accumulates, and the eventual reset happens at a worse multiple against a smaller revenue base than it would have if the conversation had happened four months earlier.

When does the window open?

Three conditions in the same month.

1. The current raise has been in process for more than four months without a lead.
2. At least one existing investor has signaled, privately or publicly, that they are prepared to participate at a reset valuation.
3. The company’s revenue has not grown by more than 15% against the last round’s plan, and the market comps for the company’s category have compressed meaningfully from the last round.

When all three are true, the window is open. Acting inside the next 60 days is materially better than acting at any later point. Waiting longer does not change the eventual outcome; it just costs more to get there.

Who should raise it first?

The lead investor. Not the CEO. Not the independent director. Not the CFO.

The reasoning is structural. The lead investor has the most complete context on comparable outcomes across their portfolio and the clearest ability to frame the reset as a portfolio-level judgment rather than a company-specific failure. When the CEO raises it first, the conversation tends to drift into blame and concession. When the independent director raises it first, the conversation tends to fracture because the GP feels cornered. When the lead raises it, the conversation can be framed constructively and moved quickly.

The CEO and the independent director can privately signal readiness. The lead should still be the one to open the conversation in writing or at the board meeting.

How should the conversation actually run?

Three board calls, not one. Compressing to one meeting creates pressure. Stretching to five creates drift.

Call 1: The restated view

The first call is grounded in a one-page document, authored by the CFO and signed by the CEO and lead, that restates the company at current reality: ICP, priced offer, revenue this quarter, restated ratios, twelve-month plan, and the one material decision still open.

This is the same one-page artifact that repairs the CEO/investor fracture in healthy board cycles. In the down-round conversation it sets the table. The document is not a pitch. It is a baseline.

The meeting discusses the restated view, acknowledges the gap between it and the last round’s premise, and identifies the participants who are willing to consider a reset.

Call 2: The mechanics

The second call is four to six weeks later and is about mechanics. Valuation range, participation terms, anti-dilution treatment, option-pool refresh, founder re-up. The CFO and outside counsel usually draft a one-page term sheet summary for the board to react to.

This call is often the hardest. Existing investors will press on anti-dilution treatment, which can create tension with non-participating members of the current cap table. The conversation is easier if it is explicit about what is actually at stake: the next two years of the company’s operating life, valued against the current market, not the last market.

Call 3: The close

The third call ratifies. The term sheet is signed, the raise is in process, and the communication to the rest of the cap table (employees, non-participating investors) is scripted. The close happens cleanly within 30 to 60 days of the third call.

What is the Decisive Finance role in this?

The Diagnostic is often the piece of work that gets the restated view onto paper. A two-week scan surfaces $22,500 to $30,000 of forward-reallocation potential, restates the three headline ratios, and produces a first Three-Path Model on the material decision still open. All three of those deliverables feed directly into the Call 1 document.

Several of the portcos we have worked with went through their down-round conversation with the Diagnostic output as the anchor document. The conversation is materially easier when the restated view is already on paper before Call 1 starts.

Where to go from here

If the raise has been in process for four months and the comps are compressing, the window is open this quarter.

Read the guarantee Book the call

Related reading:

• How the stalled raise actually happens
• The independent director’s playbook for a drifting portco
• A field guide to spotting stalled portcos