Down Round Management Checklist

Legal & Governance Preparation

• Obtain legal advice immediately: understand the implications under existing shareholder agreementsBefore any external communication, engage corporate lawyers who know the existing shareholder agreements. The legal landscape changes significantly depending on what rights were granted in prior rounds.
• Review anti-dilution provisions: full ratchet or broad-based weighted average — calculate exact impactFull ratchet provisions are rare but catastrophic in a down round — they reset the investor's conversion price to the new round price regardless of size. Weighted average is more common and less severe. Know which provisions apply before proceeding.
• Board consent: formal board resolution approving the down round and authorising new sharesA formal board resolution is required. The minutes should reflect the board's considered view that the down round is in the best interests of the company, and should document the alternatives considered.
• Shareholder consent: check whether ordinary or special majority required under ArticlesNew share issuances typically require shareholder approval under the Articles. Check whether ordinary resolution (simple majority) or special resolution (75%) is required, and whether any shareholder has veto rights over new issuances.
• Drag-along rights: confirm whether they apply and whether any shareholder can block the dealIf drag-along provisions exist, understand the threshold required to trigger them and whether any existing shareholder has the power to block. A single blocking shareholder can prevent the round from closing.
• Companies House filings: all previous rounds properly reflected before proceedingBefore issuing new shares, confirm that all previous allotments are correctly reflected at Companies House. Discrepancies between the register and the cap table must be resolved before a new round can close cleanly.

Anti-Dilution Calculations

• Identify all investors with anti-dilution protection and the type of protection they holdCompile a schedule of every investor who holds anti-dilution protection. State the type (full ratchet, broad-based weighted average, narrow-based weighted average) and the round in which it was granted.
• Calculate adjusted conversion price for each investor under their specific anti-dilution termsThe adjusted conversion price determines how many additional shares each protected investor will receive. This calculation must be done precisely — errors will need to be unwound after closing and cause legal costs and cap table complications.
• Model the additional shares required to be issued to protected investorsTranslate the adjusted conversion prices into a share count. Show the number of additional shares to be issued to each protected investor and the total dilutive impact on all other shareholders.
• Waterfall analysis updated: show post-down-round returns at various exit multiplesRebuild the waterfall with the post-round cap table, including anti-dilution adjustments. Show investor returns at 1x, 2x, 3x, 5x, and 10x multiples. Board members and founders need to understand what outcomes look like under each scenario.
• Founder dilution calculated: confirm founders understand their revised ownership percentageFounders must be clearly told their revised fully-diluted ownership percentage after the anti-dilution adjustments and new round issuances. This should be communicated in writing, with the methodology explained.

Employee Option Plan Management

• Review option agreements: do any contain anti-dilution or repricing provisionsSome option agreements, particularly those granted to senior employees at Series A, may contain provisions that are triggered by a down round. Review every option agreement before proceeding.
• Employee communication plan: legal advice on how and when to communicate to option holdersOption holders whose options are now underwater need to be communicated to — but the timing and content of that communication must be reviewed by employment and corporate lawyers. Do not improvise this communication.
• Option repricing decision: if exercise price is above new round price, consider repricing programmeUnderwater options lose their retention value immediately. If the exercise price is materially above the new round price, the board should consider a repricing programme. This requires board approval and carries accounting implications under IFRS 2.
• HMRC notification: if EMI options are repriced, notify HMRC within 92 daysEMI option repricings are treated as a disqualifying event if not notified to HMRC within 92 days. Missing this deadline removes the EMI tax advantages for the employee, which can cause significant employee relations damage.
• New option grants: top-up grants for key employees as retention tool — board approval requiredA down round creates an immediate retention risk for key employees. New option grants at the current (lower) round price, combined with refreshed vesting schedules, are the most effective retention mechanism available. These require formal board approval.

Financial Reporting Implications

• Purchase price allocation (if applicable): goodwill implications of new investment valuationWhere the down round involves a new investor acquiring shares, consider whether any purchase price allocation is required and whether goodwill or impairment charges arise under the applicable accounting framework.
• Share-based payment charge: recalculate IFRS 2 charge if option exercise prices changedAny modification to the terms of an option — including repricing — triggers a remeasurement under IFRS 2. The incremental fair value granted must be calculated and recognised as an additional charge over the remaining vesting period.
• Deferred tax implications: review any deferred tax assets affected by share option repricingRepriced options may have different deferred tax treatment than the original grants. Review the deferred tax asset position and update the tax provision accordingly, particularly if the company has a history of claiming deferred tax on share-based payments.
• Disclosure: draft note for next statutory accounts explaining the down round and its mechanicsThe down round must be disclosed in the statutory accounts with clear explanation of the new share price, the anti-dilution adjustments made, and the impact on the share capital and reserves. Draft this note before the round closes.

Investor Relations

• Existing investor communication: honest, factual, solution-focused — sent before any press coverageExisting investors must hear about the down round from you directly, before any announcement or press coverage. The communication should be factual, explain the reasoning, and focus on the path forward. Surprised investors become hostile investors.
• New investor alignment: ensure lead investor terms do not create problematic precedentsNew investor terms — particularly liquidation preferences, anti-dilution rights, and board seats — should be reviewed against the existing cap table structure. Terms that look acceptable in isolation can create serious conflicts with existing investor rights.
• Investor consent: any investors with consent rights formally contacted and process followedSome investors may hold contractual consent rights over new share issuances, changes to the Articles, or new investor rights. These consent processes must be followed formally — not informally via email or phone.
• Post-close communication: updated cap table shared with all shareholders within 5 working daysOnce the round closes, send all shareholders the updated fully-diluted cap table within 5 working days. Transparency at this stage rebuilds trust and prevents rumour and misunderstanding from taking hold.