Growthink Blog

MAY 23, 2011

Yes, you heard me right – multiple research studies, including from the Kauffman Foundation , have shown that when you remove a follow-on venture capital round from a founder or angel investor-funded company, that expected returns skyrocket. It is driven by the following: • The Best Metric for the Health of a Company is Cash Flow.

Angel Investor 112

Angel Investor Venture Capital Sweat Equity Cram Down 112

This is going to be BIG.

SEPTEMBER 7, 2012

There are a lot of people that artificially group together performance metrics for venture, and try to extrapolate successful stratagies from it. Here are the top things I hear about follow ons and why they don't make a lot of sense to me: 1) You need to have follow on capital to protect your investments in case of a down round.

Later Stage 99

Later Stage Down Round Pre-Money Valuation Early Stage 99

Feld Thoughts

APRIL 21, 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?

Marketing 70

Marketing Down Round Startup IRR 70

Reid Hoffman

JUNE 8, 2021

The burden [should] just be that we care; that if we learn something, we improve it, and that we don’t only use single output metrics and its growth at all costs. And I made a decision not to do an equity round, because I thought it would be a down round. We’ve kind of designed the kind of growth that we want.

Silicon Valley 36

Silicon Valley Hosting Rhode Island Design 36

Scalable Startup

FEBRUARY 1, 2013

And so the other reason that I am very interested in delving deep into this space is that it seems like IPOs like Workday, Palo Alto Networks are sort of — they have metrics and analytics that Wall Street understands, more so than a Facebook; like “We are going to sell X number of this in the next year.”

Software Review 22

Software Review Startup Venture Capital Stock 22

Feld Thoughts

SEPTEMBER 9, 2015

Some will demonstrate strategically justifiable metrics and have fantastic ‘up round’ exits; others may see liquidation preferences kick in which will negatively impact founders and employees; others may fulfill the adage “IPO is the new down round” , which has been the case for more than half of the public companies on our list.

Liquidation Preference 70

Liquidation Preference Burn Rate Balance Sheet .Net 70

NZ Entrepreneur

JULY 8, 2019

The situation I see time and again is an over-valuation on a markedly smaller-than-anticipated business, revenue numbers not achieved, and then needing to do another raise on a lower valuation (a ‘down-round’). A simple metric – when I registered my first company in 2004, the naming space was wide open.

New Zealand 43

New Zealand Entrepreneur Valuation Dilution 43

David Teten

AUGUST 7, 2019

Likely signs of a Value investment: the company has challenges in filling out the round; the investors have more negotiating leverage than the founders during the closing process; the company has significantly better metrics (e.g. You could argue that when they were [raising] oversubscribed [VC rounds], Facebook, Google, Amazon, etc.,

Venture Capital 60

Venture Capital Valuation Stock NDA 60

Rob Go

JUNE 1, 2016

Where I think funds do start having hard conversations around follow-ons is when they need to lead inside rounds or protect themselves in down rounds. This might not be true of all VC funds, and I know a number of funds that have a mantra that they treat follow-on rounds like “a new deal”.

Term Sheet 28

Term Sheet Portfolio Valuation Warrant 28

VC Cafe

MAY 18, 2022

Down rounds are coming. When looking at high growth public software companies, you’ll want to compare your ARR valuation multiple to their revenue valuation multiples because of its availability as a GAAP accounting metric. Source: Pitchbook NVCA Venture Monitor. Justin Kahl, David George , A16Z. Multiples by vertical.

Term Sheet 190

Term Sheet Startup Valuation Ukraine 190