An up-round is a funding round priced higher per share than the company's previous one: the new investors pay more for each share than the last lot did. For an early investor it usually means three things at once. The paper value of your stake rises. Your percentage of the company falls, because the round creates new shares. And your pro-rata right, the option to keep your percentage by investing again, now costs more to use than your first cheque did.
None of that is a malfunction. It is how priced venture rounds are built to work, and the same mechanics run every time, whatever the sector. This piece sets out the definitions and the maths; the numbers used are invented for illustration, not drawn from any real company.
The price went up. Your slice got thinner. Both are normal, and they arrive together.
Up, down, flat: the three kinds of round
The label attaches to the share price, not to the headline valuation. An up-round prices the new shares above the previous round. A down round prices them below it. A flat round prices them the same.
The market reads these as signals: up means new investors think the company is worth more than the last set did, down is usually taken as trouble, flat sits in between. The signal is real but crude. A round's price reflects the funding market on the day as much as the company's progress, which is why the same business can raise an up-round in a hot year and a flat one in a cold year without much changing inside it.
One small trap: headline valuations are usually quoted post-money, meaning after the new cash is counted in. A company can announce a bigger post-money number than last time while the price per share has barely moved. The share price is the honest test of up or down.
Why a higher price still shrinks your stake
Every priced round creates new shares to sell to the new investors. Your shares are untouched: you hold exactly as many as before. But the company now has more shares in total, so your holding is a smaller fraction of it. That is dilution, and it happens in an up-round just as it does in a down one. The full mechanics are in our dilution explainer.
A worked example, with invented numbers. You put £50,000 into a seed round at a £2.5m post-money valuation, buying 2% of the company. Eighteen months later the company raises a £2m Series A at an £8m pre-money valuation, £10m post-money. The new investors' £2m buys 20% of the enlarged company, so every existing holder's percentage shrinks by a fifth. Your 2% becomes 1.6%.
Now look at the value line. At £10m post-money, 1.6% has a paper value of £160,000, against the £50,000 you paid. Your stake is worth more than three times your money on paper, and you own less of the company than you did. Both statements are true at once, and the table above shows them side by side.
Pro-rata: keeping your percentage, at the new price
A pro-rata right is the contractual right to invest in the next round in proportion to your existing stake, so your percentage holds steady instead of shrinking. It normally comes from the term sheet or shareholders' agreement, and in practice it works round by round: use it or watch the dilution land. Our pro-rata explainer covers the right itself in full.
What an up-round changes is the cost of using it. Staying at 2% in the illustrative Series A above means putting in 2% of the £2m round, which is £40,000, at roughly four times the seed share price. The right you negotiated when your money bought 2% for £50,000 now wants another cheque almost the same size to hold the same percentage. The higher the round prices, the more keeping your place costs.
That is the practical shape of an up-round for an early investor: a paper gain on the shares you hold, and a live decision about whether to fund the right that protects your percentage.
A markup is not money
The £160,000 in the example is a markup: a new paper value for your stake, set by the price the latest investors paid. It is unrealised. No cash has reached you, and none will until the shares are actually sold, at an exit, in a secondary sale, or not at all. A markup can also reverse: the next round can price lower, and the same maths then runs against you.
That lower-priced case is the down round, and it has its own machinery. Many term sheets give investors anti-dilution protection, which adjusts their share terms if a later round prices below what they paid, softening the blow at the expense of the founders and any unprotected holders. The details, full ratchet versus weighted average, are in our anti-dilution explainer.
The Carry's Issue 16, When Your Winner's Markup Costs You the Most, takes the angel's-eye view of exactly this moment. This page holds the definitions; the issue is the full read.
Reserves, follow-on, and a note on what this isn't
Reserves are money an investor sets aside, when first investing, to fund later cheques into the same companies. They exist precisely because of the maths above: pro-rata rights are only worth what you can afford to fund when the round arrives, and up-rounds are when funding them costs most. How angels size and manage them is covered in our reserves explainer.
One UK-specific point on follow-on cheques. SEIS and EIS relief is assessed at the time of each investment, so a later cheque into a company that has grown may qualify differently from your first one, or not at all. Check the current conditions in HMRC's venture-scheme guidance before assuming relief follows the money.
And the standing note: this piece explains mechanics, nothing more. It is general information, not financial advice, and it is not a steer towards exercising, skipping or negotiating any right. Whether a follow-on makes sense depends on your portfolio, your tax position and the specific deal, and rules change at Budgets. Take FCA-regulated advice before committing capital.
Frequently asked questions
What is an up-round?
A funding round priced higher per share than the company's previous round. It signals that the new investors value the company more highly than the last ones did. For existing investors it raises the paper value of their stake while their percentage of the company falls, because the round creates new shares. The share price, not the headline valuation, is the test: post-money valuations can rise simply because more cash came in.
Does an up-round dilute early investors?
Yes, unless they exercise a pro-rata right. Every priced round issues new shares to the incoming investors, so each existing holder owns a smaller percentage of the enlarged company afterwards. The number of shares you hold does not change; the total in issue does. Dilution happens in up-rounds and down rounds alike. What the up-round adds is that buying your way back to your old percentage now costs more per share.
Is a paper markup a return?
No. A markup is an unrealised gain: a revaluation of your stake at the price the latest investors paid. It becomes a return only when shares are sold for cash, at an exit or in a secondary sale. Until then it can move in either direction, and a later round priced lower would mark the same stake back down.
What is a down round?
A round priced lower per share than the previous one. It is usually read as a sign of difficulty, though it can also reflect a colder funding market rather than a worse company. Many term sheets include anti-dilution provisions that adjust protected investors' share terms when a round prices below what they paid, which shifts more of the pain onto founders and unprotected holders.
Should I exercise my pro-rata rights in an up-round?
That is a decision this article cannot make for you. It depends on your reserves, your portfolio concentration, your tax position and your read of the specific company, and SEIS or EIS treatment of a follow-on cheque is assessed at the time of that investment. This is general information, not financial advice. Confirm the current rules at GOV.UK and take FCA-regulated advice before committing capital.