Flat Round
/flæt raʊnd/
A flat round is a funding round where a startup raises capital at the same valuation as its previous round, maintaining existing shareholders' ownership percentages without signalling major growth or distress.
A flat round is a funding round where a startup raises capital at the same valuation as its previous round, maintaining existing shareholders' ownership percentages without signalling major growth or distress.
A Flat Round is a funding round in which your company raises capital at exactly the same valuation as the previous investment round. Unlike an up round that signals growth and increases share value, or a down round that indicates struggles, a flat round maintains the status quo for existing shareholders' ownership percentages.
In practice, this means new investors receive the same price per share as those from the prior round. Your cap table changes only in terms of dilution from the new money coming in, but without any re-pricing of existing equity. Founders often view flat rounds neutrally, as they provide essential cash without the fanfare of valuation increases or the pain of reductions.
Flat rounds typically emerge in stable or cautious market conditions, where investors are unwilling to pay a premium despite solid progress. For Irish startups, they can bridge gaps between major milestones whilst preserving relationships with current backers.
The key distinction lies in valuation movement. An up round boosts the paper value of prior investments, rewarding early backers with higher ownership worth. A down round erodes value, often triggering anti-dilution provisions and morale issues. A flat round sidesteps both, offering continuity.
Whilst up rounds attract talent and media attention, flat rounds fly under the radar. They suit companies needing runway without aggressive growth narratives. Down rounds signal distress, making future raises harder, whereas flat rounds keep options open for better conditions ahead.
Flat rounds often follow periods of steady but unspectacular progress, such as consistent revenue without explosive scaling. Investors may hesitate to revalue upwards absent clear milestones like major customer wins or product launches. Economic uncertainty also plays a role, prompting conservative pricing.
For your startup, pursuing a flat round might make sense after exhausting bootstrapping efforts or bridge funding. It allows focus on execution whilst avoiding the desperation of down rounds or overhyping for up rounds.
Not inherently. They provide vital capital without value destruction, maintaining team equity stakes. However, they lack the psychological boost of up rounds, potentially impacting hiring or negotiations. Savvy founders frame flat rounds as pragmatic, focusing on runway extension.
In Ireland's ecosystem, flat rounds occur less dramatically than in hotter markets, aligning with measured investor approaches. They preserve cap table cleanliness for future equity financing at higher multiples.
Dilution occurs proportionally, as new shares issue at prior pricing. Existing holders' percentages decrease equally, without repricing benefits or penalties. This simplicity aids due diligence in subsequent rounds, showing stable investor alignment.
Track fully diluted ownership carefully. Flat rounds prevent over-optimism, ensuring realistic expectations for exits or further raises.
Evaluate market timing. If better conditions loom, a flat round buys time without down round stigma. Negotiate strong governance terms, mirroring term sheet standards from prior rounds. Consult on tax implications for share issuances.
Leverage for non-dilutive perks like introductions. Post-round, communicate transparently to sustain momentum whilst hitting milestones for the next up round.
