# What is Cram Down? Definition & Technical Mechanics

> **Source:** [SPIDITS AI Startup & Venture Intelligence Glossary](https://spidits.com/startup-glossary)  
> **Category:** Legal  
> **Canonical Citation:** [https://spidits.com/startup-glossary/cram-down](https://spidits.com/startup-glossary/cram-down)

## Definition
A Cram Down is an extreme down round where the startup's valuation is reduced so severely that the ownership stakes of previous investors and founders are heavily diluted or practically wiped out.

## Architectural Mechanics & Deep Dive
A Cram Down is an extreme down round where the startup's valuation is reduced so severely that the ownership stakes of previous investors and founders are heavily diluted or practically wiped out. Cram downs typically occur when a company is in distress and desperately needs capital to survive. To keep founders and key employees motivated, new investors often require the creation of a new management stock option pool immediately following the cram down.

## Industry Applications & Real-World Use Cases
Distressed capital raises to prevent bankruptcy

## Frequently Asked Questions

### How does a cram down affect founders?
It can strip founders of control and significantly reduce their equity stakes, requiring stock option refreshes to keep them motivated.

### Why do investors agree to a cram down?
It is typically a last resort to keep the company operational, forcing old investors to write down their investments.

## Related Terminology
- [down-round](https://spidits.com/startup-glossary/down-round)
- [dilution](https://spidits.com/startup-glossary/dilution)
- [option-pool](https://spidits.com/startup-glossary/option-pool)

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*From the SPIDITS AI Knowledge Base (300+ terms indexed). Explore full technical definitions: [https://spidits.com/startup-glossary](https://spidits.com/startup-glossary)*