Both Sides of the Table

FEBRUARY 8, 2016

Don’t assume that you can “just do a down round” if necessary. Down rounds are corrosive. So if your fund raising isn’t moving consider lowering price to shore up your balance sheet and reduce risk. Optimize for a W more than % dilution in these circumstances. Insiders hate them and fight them.

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Burn Rate Cap Table Startup Dilution 150

Both Sides of the Table

JUNE 22, 2011

New investors hate down rounds. They will enter the “triage phase&# of the market where they figure out which of their existing deals will survive. Many good companies will not get funded. Vultures will start circling looking for deals. Get funded now, if you can.&#. That’s a fact.

Saudi Arabia 309

Saudi Arabia Valuation IPO Technical Review 309

Steve Blank

NOVEMBER 2, 2009

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.)

Lean 263

Lean Silicon Valley Startup RSS 263

VC Cafe

FEBRUARY 27, 2023

The result is mass layoffs (over 119,000 in the US since the beginning of 2023 and it’s only Feb), down rounds (even for Silicon Valley darlings like Stripe) and fund terms that go above the 2/20 standard. Gil Dibner captured that sentiment in a recent Twitter thread: We talk to a fair number of LPs.

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Venture Capital Technical Review LP Institutional Investors 215

VC Cafe

FEBRUARY 27, 2024

Carta reports that 20% of the rounds in 2023 were down rounds, but I believe the actual number is much higher. For that and other reasons (like cash preservation) VCs moved to focus more on earlier stage, and many funds that typically invest in A started deploying more into seed rounds.

Valuation 186

Valuation Software Review Generative AI Technical Review 186

VC Cafe

JUNE 10, 2022

new unicorns created each day), startups may find themselves raising down rounds as they struggle to justify previous valuations. But the valuations weren’t necessarily given as a function of revenue, and often with multiples on ARR that we don’t see in today’s market. With over 1,000 global unicorns (and about 1.5

Valuation 151

Valuation Marketing Israel Venture Capital 151

Berkonomics

OCTOBER 5, 2023

It is not a strong bargaining position for the CEO to ask for money to complete a product promised for completion with the previous round of funding. And professional investors often penalize the company with lower-priced down rounds or expensive loans as a result.

Silicon Valley 118

Silicon Valley Burn Rate Angel Investor Down Round 118

crowdSPRING Blog

FEBRUARY 21, 2014

How You Get Slaughtered in a Down Round: When Taking Venture Capital Doesn’t Go as Planned – crowdspring.co/MvF29W. Facebook and WhatsApp: The Nineteen-Billion-Dollar App – crowdspring.co/1jOdRlK. DHL Pranked UPS Into Advertising For Them – crowdspring.co/1jOeA6v. “If you want to sell ads, sell ads.

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Social Media Small Business Design Media 92

Genuine VC

FEBRUARY 9, 2011

Has there ever been a down round, inside round, a flat round, or a CEO change? While the actual answer to this question won’t necessarily provide a definitive answer about the ability for the company to access both cash and additional capital, it will open up a discussion about it.

Startup 146

Startup Burn Rate Technical Review Down Round 146

Berkonomics

AUGUST 10, 2017

It is not a strong bargaining position for the CEO to ask for money to complete a product promised for completion with the previous round of funding. And professional investors often penalize the company with lower-priced down rounds or expensive loans as a result.

Silicon Valley 97

Silicon Valley Burn Rate Angel Investor Down Round 97

VC Cafe

SEPTEMBER 26, 2022

Many startups that raised money in 2021 on inflated valuations that were detached from their actual value, are struggling to raise up-rounds and face difficult choices these days: down rounds, early sellout or failing altogether. A good way to think about valuation in seed/pre-seed is to reverse engineer the next round.

Founder 187

Founder Startup Valuation Pre-Money Valuation 187

Steve Blank

APRIL 26, 2022

For the common shareholders (employees, advisors, and previous investors), a cram down is a big middle finger, as it comes with reverse split – meaning your common shares are now worth 1/10th, 1/100th or even 1/1000th of their previous value. (A A cram down is different than a down round.

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Cram Down Founder Venture Capital Recapitalization 417

Berkonomics

MARCH 30, 2010

It is not a strong bargaining position for the CEO to ask for money to complete a product promised for completion with the previous round of funding.

Silicon Valley 85

Silicon Valley Burn Rate Angel Investor Down Round 85

Lightspeed Venture Partners

OCTOBER 7, 2012

As Cuban pointed out, this is a “down round” Zomm is seeking $2M for 10% of the company, implying an $18M pre money valuation today. Some partial answers came up, including spending on a new version of the product with additional features, and excessively high inventories relative to actual sales in holiday 2011.

Technical Review 110

Technical Review Technical Cofounder Valuation Pre-Money Valuation 110

Feld Thoughts

FEBRUARY 9, 2016

Then, if you end up doing a down round, it suddenly matters a lot. Don’t worry about this too much, until you do a down round. Then use the down round to clean up your preference overhang. The post Founders – Use Your Down Round To Clean Up Your Cap Table appeared first on Feld Thoughts.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

Startup Professionals Musings

NOVEMBER 25, 2020

Unreasonably high early valuations hurt the entrepreneurs, as well as professional investors, later when a second round becomes a down round or can’t be negotiated. A startup that is listed on a crowdfunding platform gets no formal pushback or negotiation on its declared valuation.

Equity 411

Equity Angel Groups Accredited Investor Due Diligence 411

ReadWriteStart

JUNE 1, 2020

But, in subsequent rounds of funding inflated valuation will be normalized resulting in a down round. You might have seen that valuations of several unicorns were suddenly slashed down. Point number 3: Never raise money with an increased valuation. It might be tempting to do so.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

crowdSPRING Blog

MAY 10, 2013

The Damaging Psychology of Down Rounds | by Mark Suster – [link]. What Steve Jobs Can Teach Us About Management and Leadership – [link]. 7 A/B Testing Blunders That Even Experts Make – [link]. Urgency and accountability are two sides of the innovation coin – [link]. “Embrace skeptics. ” [link].

Social Media 93

Social Media Small Business Design Media 93

Both Sides of the Table

SEPTEMBER 18, 2014

And now I have to explain to team that they’re taking more dilution than they expected if we do a down round. A down round? Raising lower seems kind of like something is wrong. Me: More dilution? I thought it was a convertible note with a cap? Didn’t you consider that raising at $8 million was a possibility?

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

ReadWriteStart

JANUARY 13, 2024

Consequently, some startups have faced struggles securing investments, resulting in down rounds where their valuations decline between funding rounds. Additionally, these down rounds can decrease employee morale, as they may dilute shares or pay cuts, affecting the overall work environment.

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Down Round Marketing Artificial Inteligence Startup 154

A Crowded Space

DECEMBER 9, 2013

In VC: I see a fair number of deals that have reached some point of stagnation that are seeking a flat or down round. “The most important thing to do if you find yourself in a hole is to stop digging.” . This is bad. Tread very carefully. . 4) High Concentration of Investments - Berkshire Hathaway is massive. And yet, Mr.

Technical Review 68

Technical Review Deal Flow Balance Sheet Down Round 68

Both Sides of the Table

MAY 30, 2018

Of course valuation is in the eye of the beholder but if that VC thinks your last round valuation was way too high then he or she is more likely to politely pass rather than try and talk down your valuation now. VCs hate “down rounds” and many don’t even like “flat rounds.” There are some simple reasons.

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Valuation Post-Money Valuation Pre-Money Valuation Cofounder 324

Startup Professionals Musings

SEPTEMBER 14, 2010

This clause attempts to protect the conversion price of stock of angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “down” round. But some dilution is almost inevitable. Right of first refusal.

Term Sheet 227

Term Sheet Pre-Money Valuation Due Diligence Post-Money Valuation 227

Startup Professionals Musings

JANUARY 27, 2012

This clause attempts to protect the conversion price of stock of Angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “down” round. But some dilution is almost inevitable. Right of first refusal.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Angel Investor 223

VC Cafe

JANUARY 2, 2023

As Fred Wilson put in in his post ‘What will happen in 2023’ “I believe that ‘new normal’ is more or less where we were in 2015 where seed rounds were done around $10mm, A rounds were done around $15mm to $25mm, B rounds were done around $25mm to $50mm, and growth rounds had a cap at 10x revenues.”

Valuation 158

Valuation Down Round Israel Venture Capital 158

ReadWriteStart

NOVEMBER 22, 2010

According to Barry Kramer, a partner in the firm and a co-author of the survey, during the third quarter, "up rounds exceeded down rounds 52% to 30% with 18% flat.

Silicon Valley 115

Silicon Valley Venture Capital Valuation Down Round 115

Startup Professionals Musings

AUGUST 6, 2023

Unreasonably high early valuations hurt the entrepreneurs, as well as professional investors, later when a second round becomes a down round or can’t be negotiated. A startup that is listed on a crowdfunding platform gets no formal pushback or negotiation on its declared valuation.

Angel Groups 201

Angel Groups Accredited Investor Due Diligence Equity 201

abovethecrowd.com

APRIL 20, 2016

Also, they have a strong belief that any sign of weakness (such as a down round) will have a catastrophic impact on their culture, hiring process, and ability to retain employees. Their own ego is also a factor – will a down round signal weakness? A down round is nothing. Get over it and move on.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

Both Sides of the Table

FEBRUARY 14, 2016

Why Down Rounds are Harder Than You May Think. Down rounds are hard. A slight down round is achievable but massive “hair cuts” are very hard to do. Also, new investors will be worried that the down round will cause founders or senior management to depart and no VC wants to replace management.

Valuation 150

Valuation Down Round Startup Later Stage 150

Both Sides of the Table

SEPTEMBER 27, 2010

If you do a $1 million angel round at $6 million pre-money and hope to do a Series A round for $2-3 million that’s fine as long as you’re doing awesome against your metric goals and the market continues to be frothy. If either condition doesn’t hold it will be hard to do anything but a flat or down round.

Silicon Valley 308

Silicon Valley Liquidity Event Seed Stage Finance 308

www.paulgraham.com

APRIL 28, 2010

10 ]One new thing the company might encounter is a downround , or a funding round at valuation lower than the previousround. Down rounds are bad news; it is generally the common stockholders who take the hit. By a similar logic, one could argue that the VCs shouldbe deprived of their shares when the company goes public. [

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

Gust

OCTOBER 17, 2011

This clause attempts to protect the conversion price of stock of angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “down” round. But some dilution is almost inevitable. Right of first refusal.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Angel Investor 158

Startup Company Lawyer

MARCH 14, 2010

Given that the Series Seed is issued at a fairly low valuation, anti-dilution protection is probably not that important, as a “down round&# from a low valuation in the Series Seed is unlikely. Deleting anti-dilution rights saves several pages of text in the Certificate of Incorporation. Comprehensive protective provisions.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Ben's Blog

JULY 16, 2013

When you go to fundraise, you will need to consider the possibility of a valuation lower than the valuation of your last round, i.e., the dreaded down round. Down rounds are bad and hit founders disproportionately hard, but they are not as bad as bankruptcy. Yes, we did a down round.

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Down Round Marketing Preferred Stock Post-Money Valuation 73

VC Cafe

SEPTEMBER 6, 2024

Israel’s most promising startups in 2024, according to Israeli news website N12 News Israel Are we past the worst in down rounds? Data by Carta shows that the down round percentage for Series A through Series D fell from Q1 to Q2 of this year. AI and all the rest. 35% of U.S.

Israel 97

Israel Down Round Silicon Valley Stealth 97

YoungUpstarts

JUNE 26, 2020

I always caution entrepreneurs not to take too high a valuation in any round because it sets very high expectations for the next round. A down round, which can damage a company and make it difficult to raise money in the future. Unfortunately, most startups don’t meet their initial rosy projections. What happens then?

Finance 205

Finance Silicon Valley Valuation Startup 205

Gust

SEPTEMBER 17, 2014

And now I have to explain to team that they’re taking more dilution than they expected if we do a down round. A down round? But people seem pretty focused on that number. Raising lower seems kind of like something is wrong. Me: More dilution? I thought it was a convertible note with a cap? We never thought about it.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153