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 Venture Capital 158

Both Sides of the Table

JUNE 5, 2011

I raised my A round at a $31.5 million post-money valuation with no revenue. We had companies pitching us that had almost no revenue at all and they were raising $10-15 million in capital at a $40-50 million pre-money valuation. It was early 2000. That was market.

Pre-Money Valuation 336

Pre-Money Valuation Valuation Silicon Valley Stock 336

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

The primary source of your funds should be your paying customers, i.e., your business should generate enough revenues and profits to fund the growth and expansion. These usually play a role in the very early stage of your business, primarily pre-revenue. Reasons for funding. ? Incubators and Accelerators. Government programs.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

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

Scalable Startup

JANUARY 27, 2011

And by growth I mean revenue growth. Flat to negative revenue growth is a real red flag, especially for early stage companies. If you’re venture funded, things get kind of ugly -unhappy board members, cut off from communications, down- rounds to keep you going, or no more funding. And protection form death.

Revenue 22

Revenue Early Stage Down Round Software Review 22

VC Cafe

MAY 29, 2022

Snap’s stock plunged 40% last week after Evan Spigel announced the company will miss revenue targets, which raises questions about other ‘advertising powered’ social networks. Big tech (Google, Meta, Microsoft, Amazon, Apple) have implemented a temporary hiring freeze. Source: VentureUnlocked newsletter.

Venture Capital 183

Venture Capital Early Stage Valuation Startup 183

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. To justify the valuation, some will require 10x revenue ramp and more efficient margins. Global unicorn club (source: CB Insights ).

Europe 97

Europe Balance Sheet Valuation 97

VC Cafe

MAY 18, 2022

Down rounds are coming. David Sacks offers a few benchmarks on growth rates (revenue), gross margins, CAC payback and burn. If they’re down 60%, there’s a good chance you’re in a similar position. Source: Pitchbook NVCA Venture Monitor. Fundraising will get tougher. Startup founders should adjust expectations accordingly.

Term Sheet 190

Term Sheet Startup Valuation Ukraine 190

Berkonomics

MARCH 30, 2010

Although young companies rarely measure profitability this repeatedly, more mature companies usually can bring from five to ten percent of revenues to the bottom line in the form of net profit. Hedging against downturns The fight for quality.

Silicon Valley 85

Silicon Valley Burn Rate Angel Investor Down Round 85

Both Sides of the Table

JUNE 22, 2011

Ah, but today’s Internet companies have real revenue! New investors hate down rounds. I said that at the Founder Showcase, too. The fact that today’s Internet bubble does not represent all companies does not disprove its existence. and profits! Sure, that makes them better companies than those of 12 years ago.

Saudi Arabia 309

Saudi Arabia Valuation IPO Technical Review 309

Both Sides of the Table

SEPTEMBER 18, 2014

How will you price the next round? Your A round? Revenue multiple? Me: There is no rational explanation for valuations of A round companies by ANY objective financial measure. 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?

Venture Capital 417

Venture Capital Liquidation Preference Valuation Term Sheet 417

NZ Entrepreneur

SEPTEMBER 16, 2020

For example, “How will unit cost affect our capital requirements and how will product pricing affect revenue?” It isn’t good enough to just say ‘what does halving my revenue do to the business?’ This is more important to startups that are in the pre-revenue phase, when products are under development.

Startup 69

Startup Sales Cycle Down Round Revenue 69

Lightspeed Venture Partners

OCTOBER 7, 2012

They won a design award at a trade show, but have no revenue and no orders. 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 entrepreneur was clearly desperate.

Technical Review 110

Technical Review Technical Cofounder Valuation Pre-Money Valuation 110

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

YoungUpstarts

JUNE 26, 2020

When a VC’s website says they do “early stage” – to a VC that means a product has already been built and generating some revenue, while to an entrepreneur it means “just an idea.”. I always caution entrepreneurs not to take too high a valuation in any round because it sets very high expectations for the next round.

Finance 180

Finance Silicon Valley Valuation Startup 180

Berkonomics

MARCH 5, 2020

You may recognize these five as a slight variation on the “Berkus Method” which is often published and used by investors when valuing pre-revenue businesses. And fifth: Competitive risk. . Reduction or elimination of one or more of these risks increases the valuation of the company and certainly improves its chances of survival and growth.

Valuation 62

Valuation Down Round Early Stage Demand 62

Ben's Blog

JULY 16, 2013

Perhaps you are caught in the “Series A crunch” or perhaps you are a consumer company and expected that you would be valued on users rather than revenue like the last time. 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 Round 78

Down Round Marketing Preferred Stock Post-Money Valuation 78

ithacaVC

NOVEMBER 14, 2014

Funding lets you invest in growing your company faster than revenue growth would normally allow. Revenue is how traditional businesses get valued. Early stage companies often don’t have revenue or have revenue so low, it’s not a real indicator of future potential. This works for revenue or active users.

Valuation 69

Valuation Startup Down Round Early Stage 69

The Equity Kicker

JANUARY 22, 2014

To meet growth and revenue targets, you hire and spend like never before. 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). Investors pay a high valuation to get into a good deal, betting on continued fast growth.

Venture Capital 102

Venture Capital Down Round Valuation Lean 102

View from Seed

FEBRUARY 19, 2015

Rob,” he said, “no offense, but you aren’t going to get a world class, been-there-done-that CEO into a company with less than $1 million in revenue. Sometimes the only path forward is to fill a gap with a down round of funding, a B-player, or some other non-ideal option. Keep at it. Be pragmatic. But sometimes you can’t.

Founder 120

Founder Startup Cofounder Business Model 120

Seeing Both Sides

JANUARY 9, 2009

Seeking to assuage the nervous entrepreneurs amongst the portfolio companies that were in attendence at his networking lunch reception, he assured them, "We [Intel Capital] intend to continue forward and be very supportive of your down rounds this year". But Intel Capital will be happy to invest in their down rounds.

Down Round 20

Down Round Forecast Portfolio Government 20

Hippoland

NOVEMBER 13, 2016

But as we’ve seen, these valuations can be hocus-pocus — even at later stage rounds, we’ve seen lots of companies of late fall from grace and become massively devalued overnight when they cannot raise their next round at a higher valuation. If a company raises a good round, it gets marked up to the new value.

IRR 48

IRR Valuation Portfolio Due Diligence 48

Gust

SEPTEMBER 17, 2014

How will you price the next round? Your A round? Revenue multiple? Me: There is no rational explanation for valuations of A round companies by ANY objective financial measure. 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?

Liquidation Preference 153

Liquidation Preference Valuation Term Sheet Stock 153

Both Sides of the Table

FEBRUARY 8, 2016

If you raised money in the past 2 years and have grown it is possible that your next round valuation might be flat (or lower) even though you have a higher revenue because investors may value your multiple differently. Don’t assume that you can “just do a down round” if necessary.

Burn Rate 150

Burn Rate Cap Table Dilution Balance Sheet 150

Reid Hoffman

JUNE 8, 2021

But now our hosts are really angry, and they have a huge revenue shortfall. 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. We couldn’t make them whole. So we’re going to do debt.

Silicon Valley 69

Silicon Valley Hosting Rhode Island Design 69

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

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

Business Plan Blog

OCTOBER 8, 2013

If you are pre-revenue then it will be difficult to portray market traction unless you have the budget to conduct customer surveys. Investors want to see a growth/revenue model that uses sales data and assumptions that predict sales by product and region. Ignoring Market Need/Traction. Ignoring Milestones.

Business Plan 67

Business Plan NDA Exit Strategy Valuation 67

Ben's Blog

JULY 16, 2013

Perhaps you are caught in the “Series A crunch” or perhaps you are a consumer company and expected that you would be valued on users rather than revenue like the last time. 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.

Marketing 46

Marketing Preferred Stock Post-Money Valuation Down Round 46

Growthink Blog

MAY 23, 2011

This venture capital financing - usually between $3 and $10 million - is the first of a number of rounds of outside investment over a period of three to five years. With this capital, the company propels itself to $50 million+ in revenues, and to either a sale to a strategic acquirer or to an initial public offering.

Angel Investor 112

Angel Investor Venture Capital Sweat Equity Cram Down 112

Both Sides of the Table

SEPTEMBER 27, 2010

They raised at $40 million pre-money for pre-revenue companies and when the economy corrected it became hard for them to refinance themselves. If either condition doesn’t hold it will be hard to do anything but a flat or down round. We saw this with VC backed companies in 07/08.

Liquidity Event 308

Liquidity Event Silicon Valley Seed Stage Finance 308

Reid Hoffman

JUNE 8, 2021

But now our hosts are really angry, and they have a huge revenue shortfall. 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. We couldn’t make them whole. So we’re going to do debt.

Silicon Valley 36

Silicon Valley Hosting Rhode Island Design 36

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. LTV / CAC, revenue growth, etc.) were clearly Momentum, but [in hindsight] they were also Value.”

Venture Capital 60

Venture Capital Valuation Stock NDA 60

Tim Keane

AUGUST 20, 2009

"  The problem has been that too-high valuations and too generous terms have spawned painful down rounds that squash the entrepreneur and his early investors.    New money, usually VC money, comes in and crams down those early investors and takes substantial shares from the entrepreneur. 

Milwaukee 60

Milwaukee Bootstrapping Cram Down Deal Structure 60

Scalable Startup

OCTOBER 26, 2011

It’s no longer based on a hunch, unless the company is in trouble and needs money to finish what the first round started. This problem often leads to a lowered valuation or “down round” Not a great scenario.) If the company is doing well, the second round is easier to acquire.

Mezzanine 22

Mezzanine Due Diligence IPO Angel Investor 22

www.paulgraham.com

APRIL 28, 2010

There never has to be atime when you have no revenues. 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.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76