Markdown
A decrease in the estimated value of a fund's investment, often after a down round or market shift.
Definition
A markdown occurs when a VC fund decreases the carrying value of a portfolio investment, typically after a down round, missed milestones, or market deterioration. Markdowns reduce the fund's TVPI and are painful for GPs because they hurt performance metrics and make it harder to raise subsequent funds. In severe cases, an investment may be marked down to zero (a write-off).
Why it matters
A markdown on your company means the VC believes the company is worth less than before. This may precede a down round, cost cuts, or other negative events. If your company's investors are marking down their position, it is a signal to pay attention.
Example
A VC had marked their $10M investment up to $50M after a Series C. Due to market conditions and slowing growth, they mark it down to $25M. The fund's TVPI drops accordingly. If the company's next round is a down round, a further markdown follows.