Steve Blank

APRIL 26, 2022

They offered desperate founders more cash but insisted on new terms, rewriting all the old stock agreements that previous investors and employees had. Some even insisted that all prior preferred stock had to be converted to common stock. A cram down is different than a down round.

Cram Down 417

Cram Down Founder Venture Capital Recapitalization 417

Both Sides of the Table

SEPTEMBER 18, 2014

If you’re wildly successful early on or if they help you achieve a great valuation they actually pay a significant price for their eventual stock even though they took much more risk than a future investor and backed you early. Less than you’ll probably grant your most junior employees in stock options? A down round?

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Lightspeed Venture Partners

OCTOBER 7, 2012

Week three’s breakdown covered topics like how hard momentum is to turn around, and how participating preferred stock works. This time I’ll break down week four of this season. 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.

Technical Review 110

Technical Review Technical Cofounder Valuation Pre-Money Valuation 110

www.paulgraham.com

APRIL 28, 2010

A lawyer I asked about it said: When the company goes public, the SEC will carefully study all prior issuances of stock by the company and demand that it take immediate action to cure any past violations of securities laws. Unfortunately,its impractical (if not illegal) to adjust the valuation of thecompany up and down for each investor.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

Startup Company Lawyer

MARCH 14, 2010

I think that the Series Seed documents are probably most appropriate in a friends and family equity seed financing, as opposed to a round led by a professional investor. To differentiate it from typical “Series A&# preferred stock, which comes with certain expectations with regard to rights. Why is it called Series Seed?

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Startup Professionals Musings

SEPTEMBER 14, 2010

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. Venture capitalists and later round investors like the preferred convertible shares. This does not mean that if you have eight angels in your company, you will have to seat all eight of them on your board.

Term Sheet 227

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

Startup Professionals Musings

JANUARY 27, 2012

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. Venture capitalists and later round investors like the preferred convertible shares. This does not mean that if you have eight Angels in your company, you will have to seat all eight of them on your board.

Term Sheet 223

Term Sheet Pre-Money Valuation Due Diligence Angel Investor 223

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. At one point, he had just 5 individual companies representing 70% of his public stock portfolio. “The most important thing to do if you find yourself in a hole is to stop digging.” . This is bad.

Technical Review 68

Technical Review Deal Flow Balance Sheet Down Round 68

Feld Thoughts

FEBRUARY 9, 2016

Once again, as we find ourselves in the middle of a significant public market correction, especially around technology stocks, there’s an enormous amount of noise in the system, as there always is. Then, if you end up doing a down round, it suddenly matters a lot. Go read it now – I’ll wait.

Cap Table 70

Cap Table Down Round Liquidation Preference Founder 70

Gust

OCTOBER 17, 2011

The first capital a young company receives usually takes the form of common stock, the same class of shares the founders hold. Venture capitalists and later round investors like the preferred convertible shares. This does not mean that if you have eight angels in your company, you will have to seat all eight of them on your board.

Term Sheet 158

Term Sheet Pre-Money Valuation Due Diligence Angel Investor 158

YoungUpstarts

JUNE 26, 2020

I used to think a valuation was kind of like a stock price of a public company. Setting aside the issues of valuation of common stock vs. preferred stock, what I really didn’t understand was that a valuation is a set of expectations. A down round, which can damage a company and make it difficult to raise money in the future.

Finance 205

Finance Silicon Valley Valuation Startup 205

Gust

SEPTEMBER 17, 2014

If you’re wildly successful early on or if they help you achieve a great valuation they actually pay a significant price for their eventual stock even though they took much more risk than a future investor and backed you early. Less than you’ll probably grant your most junior employees in stock options? A down round?

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

abovethecrowd.com

APRIL 20, 2016

The same thing happened to many Internet stocks. 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?

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

Both Sides of the Table

FEBRUARY 14, 2016

I wonder whether LinkedIn’s stock market plunge in January 2016 might have a similar effect (to a lesser magnitude because the underlying company is still great). But it was a shock to the system to see such a beloved tech stock get so ravaged on valuation in a single day. Why Down Rounds are Harder Than You May Think.

Valuation 150

Valuation Down Round Startup Later Stage 150

Both Sides of the Table

FEBRUARY 4, 2016

As I’ve argued for ages there has to be a correlation between public tech stock valuations and private market valuations. 61% of VCs said valuations were “marginally down” in Q4 of 2015 but 91% expect price decreases in the next two quarters. Most flat rounds. More down rounds. So what happened?

LP 150

LP Valuation Burn Rate Pre-Money Valuation 150

Ben's Blog

JULY 16, 2013

In fact, if you are like most companies, your managers probably implied to your employees that your stock price would only rise as long as you were private. They might have said something ridiculous like: “Based on the current price of the preferred stock, your offer is already worth $5M.” As if the price could never go down.

Down Round 73

Down Round Marketing Preferred Stock Post-Money Valuation 73

www.quora.com

SEPTEMBER 22, 2011

Type to Add and Search Questions; Search Topics and People Startups Startup Compensation Entrepreneurship Compensation Stock Options Major Internet Companies Silicon Valley Why is there such a large founder to early employee equity drop-off? Is there a difference between getting equity, stock, shares?

Equity 40

Equity Employee Founder Cofounder 40

Scalable Startup

FEBRUARY 1, 2013

All you need is for one of the new enterprise companies to completely whiff a quarter and their stock will collapse and then everybody will get all freaked out. We are already invested in these companies; we can’t sell our stock. We don’t have to sell our stock. People get confused about — it’s really funny watching the stock.

Software Review 22

Software Review Startup Venture Capital Stock 22

Reid Hoffman

JUNE 8, 2021

We took nearly 2% of the company’s stock, and we put it aside and we created, it was actually 9.2 And I made a decision not to do an equity round, because I thought it would be a down round. And I said, I think it’s going to be a down round, because people are scared. I think there’s a one-for-one-for-one.

Silicon Valley 69

Silicon Valley Hosting Rhode Island Design 69

Hunter Walker

AUGUST 8, 2023

At the time, this is last quarter and the stock market has trended upwards nicely since then (a potential leading indicator of private tech valuations), we all agreed venture portfolios were probably still 25-40% overvalued. Restructures, Down Rounds, and Pay to Plays. Whatever gets reported is just the tip of the iceberg.

Portfolio 117

Portfolio Cap Table LP Valuation 117

Berkonomics

AUGUST 3, 2023

They have been burned too badly during the last decade by overvaluing businesses and finding themselves like friends and family, “stuffed” into a down round of lower valuation when a company takes its next round of financing from the next step, venture capitalists.

Private Equity 118

Private Equity Valuation Cap Table Accredited Investor 118

Berkonomics

JUNE 8, 2017

They have been burned too badly during the last decade by overvaluing businesses and finding themselves like friends and family, “stuffed” into a down round of lower valuation when a company takes its next round of financing from the next step, venture capitalists.

Private Equity 106

Private Equity Valuation Cap Table Accredited Investor 106

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

Both Sides of the Table

MARCH 30, 2016

forward revenue for public comps (comparable stocks). We cut price and doubled down on an aggressive campaign to call back people who had been on the fence given the economic climate of prices dropping. FOMO was NOMO. As in no more. SaaS valuations had completely reverted to the mean and were now trading at 4.2x

Balance Sheet 150

Balance Sheet Burn Rate Valuation Forecast 150

The Equity Kicker

NOVEMBER 20, 2015

That’s good news for both companies, because first day declines can sour a stock for months to come. I say that because investors in the $6bn round in Square have still made money on the deal. They had a ‘ratchet’ which repriced their investment in the event of a down round to give them a 20% return.

IPO 60

IPO Matching Ratchet Valuation 60

ithacaVC

FEBRUARY 1, 2018

If FFAs only invest at the beginning and do not make any follow on investments as the company raises more $$ then the only real way FFAs make money when the company is ultimately sold is if the company keeps raising future rounds at higher and higher valuations (and IPO exit may provide upside if the stock price increases over time after the IPO).

Preemptive Right 45

Preemptive Right Cap Table Valuation Dilution 45

ithacaVC

FEBRUARY 23, 2012

Most of my stomach turning results from the fact that this exercise is purely about unrealized return values of purely non-liquid assets (unless of course there is an active secondary market for the stock – this applies to a few handfuls of VC backed companies). It is easy to tell your LPs that the valuations are conservative…

Valuation 49

Valuation Institutional Investors Marketing Down Round 49

Berkonomics

JANUARY 20, 2010

They have been burned too badly during the last decade by overvaluing businesses and finding themselves like friends and family, “stuffed” into a down round of lower valuation when a company takes its next round of financing from the next step, venture capitalists.

Private Equity 69

Private Equity Valuation Cap Table Accredited Investor 69

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

David Teten

AUGUST 7, 2019

The second strategy is Value Investing , a strategy which “seeks to maximize returns by finding stocks that are undervalued by the market…Investors assess a stock’s intrinsic value…and compare that value with the stock price. were clearly Momentum, but [in hindsight] they were also Value.”

Venture Capital 60

Venture Capital Valuation Stock NDA 60

Ben's Blog

JULY 16, 2013

In fact, if you are like most companies, your managers probably implied to your employees that your stock price would only rise as long as you were private. They might have said something ridiculous like: “Based on the current price of the preferred stock, your offer is already worth $5M.” As if the price could never go down.

Marketing 36

Marketing Preferred Stock Post-Money Valuation Down Round 36

A Crowded Space

MAY 31, 2016

We expect there to be an increase in down rounds, flat rounds, inside rounds and various pay-to-play scenarios. This means that unless a preferred shareholder pays in their pro-rata share of an inside round, their stock may be converted to common shares.

Cram Down 60

Cram Down Pay to Play Angel Investor Warrant 60

Reid Hoffman

JUNE 8, 2021

We took nearly 2% of the company’s stock, and we put it aside and we created, it was actually 9.2 And I made a decision not to do an equity round, because I thought it would be a down round. And I said, I think it’s going to be a down round, because people are scared. I think there’s a one-for-one-for-one.

Silicon Valley 36

Silicon Valley Hosting Rhode Island Design 36

thebarefootvc

JULY 26, 2015

After a tumultuous week in global markets, today the US stock market ended higher on the session. As someone who invested through the 2001 and 2008 crashes I can assure you that down rounds and fire sales are not fun for anyone involved. and the Nasdaq (which includes Apple, Google, Intel and other tech stalwarts) gained 4.2%.

Marketing 40

Marketing Investment Bankers Valuation China 40

thebarefootvc

AUGUST 26, 2015

After a tumultuous week in global markets, today the US stock market ended higher on the session. As someone who invested through the 2001 and 2008 crashes I can assure you that down rounds and fire sales are not fun for anyone involved. and the Nasdaq (which includes Apple, Google, Intel and other tech stalwarts) gained 4.2%.

Marketing 40

Marketing Investment Bankers Valuation China 40

thebarefootvc

AUGUST 26, 2015

After a tumultuous week in global markets, today the US stock market ended higher on the session. As someone who invested through the 2001 and 2008 crashes I can assure you that down rounds and fire sales are not fun for anyone involved. and the Nasdaq (which includes Apple, Google, Intel and other tech stalwarts) gained 4.2%.

Marketing 40

Marketing Investment Bankers Valuation China 40

Hippoland

NOVEMBER 13, 2016

If a company sells for stock or partial-stock, then it’s more complicated, depending on whether the acquirer is a public company or a private company, and we don’t need to dive into that in this post. If a company raises a good round, it gets marked up to the new value. Companies that exit are valued at whatever the sale is.

IRR 48

IRR Valuation Portfolio Due Diligence 48