Both Sides of the Table

JULY 29, 2010

The A round was done in February 2000 (end of the bull market) and my B round was done in April 2001 (bear market). As a result I had to do a down round. Down rounds are psychologically really difficult on companies and can make it harder to do later rounds. I eventually needed more money.

Venture Capital 282

Venture Capital Term Sheet Valuation Stock Options 282

ReadWriteStart

JUNE 1, 2020

It is going to cost a lot of money just to get the initial batch of products to test the market and would definitely require external funding. The business model and revenue model, along with your positioning, pricing, and cost structures, are equally important. ? Future potential. Both of which are expensive and time-consuming.

Startup 150

Startup Elevator Pitch Entrepreneur Seed Stage 150

Berkonomics

AUGUST 3, 2023

When the need is high… For the rest of us, desiring to build large, valuable enterprises quickly, the need for outside capital is high on our list of requirements and even the source for some sleepless nights as we worry over the availability and cost of capital. These include Y-Combinator and TechStars, among others.

Private Equity 118

Private Equity Valuation Cap Table Accredited Investor 118

VC Cafe

OCTOBER 31, 2022

Many companies are now having to resort to tough measures in order to stay afloat, including layoffs, down rounds and tough terms from current investors. If the answer is yes, then a down round is likely the best path forward. Why you shouldn’t worry about raising a down round ( source ).

Founder 173

Founder Technical Review Down Round Liquidation Preference 173

Both Sides of the Table

JUNE 22, 2011

New investors hate down rounds. When your competition does irrational things to grow fueled by low-cost capital it makes it harder for you to compete by playing by the conventional rules. They will enter the “triage phase&# of the market where they figure out which of their existing deals will survive. That’s a fact.

Saudi Arabia 309

Saudi Arabia Valuation IPO Technical Review 309

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? There are a million ways to do quick, easy, low-cost rounds with prices. So if the next round is higher they have a much lower cost of ownership than the next investors anyways.

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

Berkonomics

MARCH 30, 2010

What most managers miss is that every month cut from the time it takes to perform such tasks cuts the cost by the value of a month’s worth of fixed overhead or burn.

Silicon Valley 85

Silicon Valley Burn Rate Angel Investor Down Round 85

Startup Professionals Musings

MAY 20, 2016

I would summarize the views and qualms from professional investors as the following: Crowdfunding platform costs could trickle down to angel groups. These groups are now largely run by volunteers at no cost to entrepreneurs. Later funding rounds can’t deal with a thousand shareholders.

Angel Groups 136

Angel Groups Equity Accredited Investor Due Diligence 136

NZ Entrepreneur

SEPTEMBER 16, 2020

For example, “How will unit cost affect our capital requirements and how will product pricing affect revenue?” Cost of goods sold (COGS). If a startup expects $1M in sales revenue but only gets $100k and they haven’t got a backup plan, they may face a down round or in the worst case liquidity concerns.

Startup 69

Startup Sales Cycle Down Round Revenue 69

crowdSPRING Blog

MAY 10, 2013

The Damaging Psychology of Down Rounds | by Mark Suster – [link]. Hospital Prices No Longer Secret As New Data Reveals Bewildering System, Staggering Cost Differences – [link]. What Steve Jobs Can Teach Us About Management and Leadership – [link]. 7 A/B Testing Blunders That Even Experts Make – [link].

Social Media 93

Social Media Small Business Design Media 93

Lightspeed Venture Partners

OCTOBER 7, 2012

As he said, “Great innovations solve problems or reduce costs. 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. Kevin questioned the use case since bowls are ubiquitous. The company still had $2M in inventory on the books.

Technical Review 110

Technical Review Technical Cofounder Valuation Pre-Money Valuation 110

Mike Michalowicz

SEPTEMBER 29, 2014

For example, responding to a question about price you say, “that’s going to cost between $20,000 and $30,000.” 10,000 is a round number and that means that it is not specific. The client is either going to figure you have no real idea what something costs, or that you’re rounding up in anticipation of expecting to be negotiated down.

Down Round 117

Down Round Cost Customer Marketing 117

Berkonomics

MARCH 28, 2019

This is only a minor problem in that both forms can convert easily into ‘C’ corporations at low cost and little consequence. First, VC’s in general cannot invest in ‘S’ corporations or limited liability companies (LLC’s). And what VC’s worry about.

Limited Liability Company 48

Limited Liability Company Post-Money Valuation Valuation Down Round 48

Both Sides of the Table

FEBRUARY 8, 2016

The smartest companies in the market that I know are working aggressively to lower burn rates through pragmatic cost cutting knowing that the next fund-raising cycle may be unpleasant. I’ve heard enough companies say “we simply can’t cut costs or it will hurt the long-term potential of the business” to get a wry smile.

Burn Rate 150

Burn Rate Cap Table Startup Balance Sheet 150

Both Sides of the Table

FEBRUARY 4, 2016

In fact, 62% of VCs surveyed – across a wide variety of stages and geographies – said their portfolios were starting to cut costs, expected the markets to tighten. Most flat rounds. More down rounds. More structured rounds. And of course all of these factors are related.

LP 150

LP Valuation Burn Rate Pre-Money Valuation 150

Berkonomics

JUNE 8, 2017

For the rest of us desiring to build large, valuable enterprises quickly, the need for outside capital is high on our list of requirements and even the source for some sleepless nights as we worry over the availability and cost of capital. It is for this group that we explore the implications implicit in raising money for growth.

Private Equity 106

Private Equity Valuation Cap Table Accredited Investor 106

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 Seed Stage 186

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? There are a million ways to do quick, easy, low-cost rounds with prices. So if the next round is higher they have a much lower cost of ownership than the next investors anyways.

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Berkonomics

APRIL 6, 2012

This is only a minor problem in that both forms can convert easily into ‘C’ corporations at low cost and little consequence. More importantly, VC’s will worry over a number of issues when looking at a company and deciding about an investment.

Limited Liability Company 79

Limited Liability Company Post-Money Valuation Valuation Down Round 79

For Entrepreneurs

APRIL 7, 2011

Introduction This post aims to help startup CEOs optimize their funding strategy by examining how investors value startups, and explaining how to avoid the common cash management pitfalls. Note: The concepts in this post will likely be obvious to experienced CEOs and entrepreneurs.

Finance 167

Finance Startup Cost Entrepreneur 167

David Teten

AUGUST 7, 2019

“You could argue that when they were [raising] oversubscribed [VC rounds], Facebook, Google, Amazon, etc., The reverse also holds: a Value investment can become Momentum, and then follow with a down round. Running your own analytics and sourcing process has real financial costs.

Venture Capital 60

Venture Capital Valuation Stock NDA 60

Growthink Blog

MAY 23, 2011

Technical progress and market traction are much slower and cost a lot more than anticipated. A " black swan " investor appears out of the blue and backs the company - less impressed by the technology than by the talent, desire, and grit of the entrepreneur. There are a lot of dark, hard days.

Angel Investor 112

Angel Investor Venture Capital Sweat Equity Cram Down 112

Both Sides of the Table

SEPTEMBER 27, 2010

My wife worked at Google so while we had good income in Silicon Valley it’s hardly the life of luxury given the costs of housing. If either condition doesn’t hold it will be hard to do anything but a flat or down round. &# I was a founder once. I had two kids and a rental house.

Liquidity Event 308

Liquidity Event Silicon Valley Seed Stage Finance 308

VC Cafe

SEPTEMBER 26, 2022

The press took notice, especially since just a few months later startups were laying off employees en-masse to cut costs. Sustainable growth: Prioritise sales efficiency over growth at all costs. 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

Tim Keane

SEPTEMBER 17, 2009

.  If the venture with these characteristics is worth investing in, the business is going to take longer and cost more to get to its milestone. Third, angels in particular have had unpleasant experiences with second rounds that are venture led where down-round terms are painful and expensive.

Wisconsin 60

Wisconsin Valuation Angel Investor Startup 60

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.) Sales people cost money, and when they’re not bringing in revenue, their wandering in the woods is time consuming, cash-draining and demoralizing.

Lean 244

Lean Silicon Valley Startup RSS 244

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

Berkonomics

JANUARY 20, 2010

For the rest of us desiring to build large, valuable enterprises quickly, the need for outside capital is high on our list of requirements and even the source for some sleepless nights as we worry over the availability and cost of capital. Do not expect grand valuations of your enterprise from these professional angels.

Private Equity 69

Private Equity Valuation Cap Table Accredited Investor 69

VC Cafe

JANUARY 29, 2024

Many startups extended runway, cut costs and took on painful down rounds or expensive debt to avoid raising in 2023. It’s not just a cost consideration, but a desire for independence and neutrality. Those ‘band aids’ are running their course and it might get worse (i.e.

Generative AI 171

Generative AI Global Venture Capital Valuation 171

abovethecrowd.com

APRIL 20, 2016

In Silicon Valley boardrooms, where “growth at all costs” had been the mantra for many years, people began to imagine a world where the cost of capital could rise dramatically, and profits could come back in vogue. Their own ego is also a factor – will a down round signal weakness? A down round is nothing.

IPO 40

IPO Term Sheet Valuation Silicon Valley 40

Both Sides of the Table

FEBRUARY 14, 2016

And imagine this … if you’re doing triage on your own portfolio and spending hours negotiating with other VCs and with entrepreneurs who don’t want to cut costs … then how likely are you to want to look at other people’s deals? Why Down Rounds are Harder Than You May Think. Down rounds are hard.

Valuation 150

Valuation Down Round Startup Later Stage 150

Scalable Startup

OCTOBER 26, 2011

The second round is often for some or all of the following – corporate growth, go to market, turn the prototype into a robust offering, marketing costs, or to hire a sales force. It’s no longer based on a hunch, unless the company is in trouble and needs money to finish what the first round started.

Mezzanine 22

Mezzanine Due Diligence IPO Angel Investor 22

VC Cafe

NOVEMBER 30, 2022

Atomico’s founder Nicklas Zennstrom recently called the end of the high valuations era and urged founders and VCs to remove the stigma from down rounds. Growth at all costs is no longer an option. Global unicorn club (source: CB Insights ).

Europe 97

Europe Balance Sheet Venture Capital 97

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. It cost us nothing. And then we had actually raised money.

Silicon Valley 69

Silicon Valley Hosting Rhode Island Design 69

Altgate

MARCH 8, 2009

Later stage funds will end up owning more of their portfolio companies via down rounds and ultimately should see ok returns. The early stage investors are going to take a huge hit since many of their portfolio companies will be capital starved and will be forced out of business or into fire sales.

Later Stage 34

Later Stage Early Stage Venture Capital Portfolio 34

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. It cost us nothing. And then we had actually raised money.

Silicon Valley 36

Silicon Valley Hosting Rhode Island Design 36

Both Sides of the Table

JUNE 5, 2016

In other words, it isn’t that VCs suddenly got smart, it’s that the costs of starting a company went down dramatically. If a company raised a big B and/or C round and needs more money the late stage guys have the bucks and that early-stage guys often don’t. 3VCs agreed to fund an inside round and cut costs.

Venture Capital 150

Venture Capital Silicon Valley Burn Rate LP 150