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In times when venture capital is hard to get, investors extract high costs for failure (down-rounds, cram downs , new management teams, shut down the company.) Marketing demand creation programs (Search Engine Marketing, Public Relations, Advertising, Lead Generation, Trade Shows, etc.)
Many companies are now having to resort to tough measures in order to stay afloat, including layoffs, downrounds and tough terms from current investors. TVPI = total value to paid in capital (paper gains) DPI = distributed to paid-in capital (real cash gains, paid out). But it’s not just billionaires who are struggling.
The only practical situation that I can think of where a dividend preference is beneficial to a stockholder is where a company does a partial sale of assets and wishes to distribute the proceeds to stockholders. The only way that the Series Seed documents will be widely used is if investors demand use of the documents.
In a progressively saturated market, these startups need to reevaluate their strategies and wisely distribute resources to remain competitive and sustainable amidst the demands of investors and well-established competitors.
Many VCs will have a distribution curve where they’ll do a small number of early-stage deals (say $1.5–3 3 million invested at a $6–10m pre-money), a larger number of “down the fairway” deals ($4–5 million at a $15–25 million pre) and a few later-stage deals (say $8–10 million at a $30–40 million pre).Of There are some simple reasons.
While 7,838 tech jobs were lost across 120 companies in 2022, according to an analysis by Tech12 , the demand for engineers remained high with 13,100 open engineering roles. Sector funding distribution according to Greenfield Partners. Downrounds, especially for growth stage companies, and bridge rounds galore.
A much better analysis would be ‘if we do not secure this distribution agreement, the market share we can achieve by this date will be halved.’. To identify sensitivities here, you need to comprehensively challenge your assumptions about demand, sales cycles, etc. Define ‘Expected Case’, ‘Worst Case’ and ‘Best Case’.
Also, they have a strong belief that any sign of weakness (such as a downround) will have a catastrophic impact on their culture, hiring process, and ability to retain employees. Their own ego is also a factor – will a downround signal weakness? A downround is nothing. Get over it and move on.
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