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Founders – Use Your Down Round To Clean Up Your Cap Table

Feld Thoughts

” Many companies have hired ahead of their growth rate because they had the cash to do so. 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.

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Why Raising Too Much Money Can Harm Your Startup

Both Sides of the Table

It is a truism that with more capital you will hire people more quickly and spend more liberally whether it’s on external contractors, PR firms, attending events, doing legal work (trademarks, patents) or whatever. It forces harder decisions about whom you’ll hire and whom you’ll delay. million or $4 million.

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Why Startups Should Raise Money at the Top End of Normal

Both Sides of the Table

Even if you have an interesting story to tell most investors won’t want to go through the brain damage of doing a “ down round ,&# which creates tension between them and early investors. And the CEO they would hire to come in and run the business when you go would always be a mercenary.

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Take Five – How will the downturn continue to play out on startups and venture capital

VC Cafe

Layoffs and hiring freezes have started. Big tech (Google, Meta, Microsoft, Amazon, Apple) have implemented a temporary hiring freeze. Pace of VC deals overall has slowed in 2022 Valuations are lowering and down-rounds are starting to occur Innovation will continue to happen and venture capital will find alpha (Amen!).

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On Bubbles … And Why We’ll Be Just Fine

Both Sides of the Table

New investors hate down rounds. Huge structural under-employment in much of the country and full employment in some niche tech markets where it’s impossible to hire developers, designers or sales professionals. So I’m not advocating panic or a need to rush your funding round. Get funded now, if you can.&#.

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Premature scaling at Series B

The Equity Kicker

To meet growth and revenue targets, you hire and spend like never before. You rush a few key hires, overbuild the team, ramp marketing spend. You fall into the spiral of death: head of sales gets replaced (at least once), CEO gets replaced (at least once), a down-round financing happens (if lucky).

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Current Startup Market Emotional Biases

Feld Thoughts

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?