INDUSTRY INSIGHTS YOUR PEERS ARE READING
We expect there to be an increase in down rounds, flat rounds, inside rounds and various pay-to-play scenarios. These companies shut down. These shut downs are likely to happen when companies are funded solely by seed funds and angel investors that have not reserved significant capital for follow-on investments. A 5% equity stake could get cut down to 1%. Every single one of them had either a flat, down, or inside round during their history. MORE
" 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. New money, usually VC money, comes in and crams down those early investors and takes substantial shares from the entrepreneur. MORE
This combo all too often leads to various forms of deal unpleasantness, like cram-down rounds, liquidation preferences, and change of control provisions, which in turn, often lead to unhappy founders and angel investors even in somewhat successful exits. The typical wisdom regarding the appropriate financing course for a new company goes as follows: 1. MORE
They chose the name First Round Capital because they thought capital would be deployed most efficiently at smaller seed stage rounds considering the cost to build an internet business had come down drastically. If you read this blog often you'll know that I'm a huge fan of First Round Capital. MORE
But overall, I think there is one major issue at work, and it does come down to the culture and high-brow intellectualism of this market. Angels don’t want to look stupid by having the large number of losses required to catch winners, or get crammed down by VCs investing big dollars ahead of them. VC’s don’t want to look stupid by investing in things too early, or trying to use capital as a weapon only to go down in flames. MORE
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.) MORE
Getting Crammed Down. If a), you reduce the cram-down risk, but also reduce the fund’s upside because you own less of your portfolio companies to begin with. I think it’s sometimes a good exercise for companies to take a step back and think about the big external threats to their businesses. This forces some level of intellectual honestly about one’s position in the market, and can push you to try to see around corners and respond. MORE
That means writing down and signing the terms of the agreement, after making sure everyone understands them. New money from professional investors sees no value in old money, so the equity of early investors is “crammed down” and often lost in the scale-up surge. MORE
The single most important ingredient of success is not the idea, but having a team in place that has impeccable integrity, can iterate the product quickly, pivot the business model as necessary, and keep costs down in the process. People with money to invest have choices. MORE
That means writing down and signing the terms of the agreement, after making sure everyone understands them. New money from professional investors sees lesser value in old money, so the equity of early investors is “crammed down” and often lost in the scale-up surge. MORE
a) doing what is effectively a down round preemptively when I don’t have to, by underpricing my current round in this market vs. b) accepting the market price along with some risk of taking a down round in the future, if I don’t hit my milestones, why would I ever choose b)?” MORE
That means writing down and signing the terms of the agreement, after making sure everyone understands them. New money from professional investors sees lesser value in old money, so the equity of early investors is “crammed down” and often lost in the scale-up surge. MORE
Sometimes you’ll see that the lifetime value of your customers has gone way down because now you’re doing volume you’ve harvested all your ‘ideal’ early adopters. With the lower evaluation, all the initial investors and the founders will be crammed down and lose a good portion of their equity. MORE
That means writing down and signing the terms of the agreement, after making sure everyone understands them. New money from professional investors sees lesser value in old money, so the equity of early investors is “crammed down” and often lost in the scale-up surge. MORE
Cram Down Related Topics 
Startup Professionals Musings
MARCH 9, 2018
That means writing down and signing the terms of the agreement, after making sure everyone understands them. New money from professional investors sees no value in old money, so the equity of early investors is “crammed down” and often lost in the scale-up surge.
Both Sides of the Table
MAY 5, 2013
a) doing what is effectively a down round preemptively when I don’t have to, by underpricing my current round in this market vs. b) accepting the market price along with some risk of taking a down round in the future, if I don’t hit my milestones, why would I ever choose b)?”
Startup Professionals Musings
NOVEMBER 11, 2015
That means writing down and signing the terms of the agreement, after making sure everyone understands them. New money from professional investors sees lesser value in old money, so the equity of early investors is “crammed down” and often lost in the scale-up surge.
Startup Professionals Musings
OCTOBER 10, 2014
That means writing down and signing the terms of the agreement, after making sure everyone understands them. New money from professional investors sees lesser value in old money, so the equity of early investors is “crammed down” and often lost in the scale-up surge.
Startup Professionals Musings
JUNE 2, 2013
The single most important ingredient of success is not the idea, but having a team in place that has impeccable integrity, can iterate the product quickly, pivot the business model as necessary, and keep costs down in the process. People with money to invest have choices.
Startup Professionals Musings
APRIL 17, 2013
That means writing down and signing the terms of the agreement, after making sure everyone understands them. New money from professional investors sees lesser value in old money, so the equity of early investors is “crammed down” and often lost in the scale-up surge.
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. These companies shut down. These shut downs are likely to happen when companies are funded solely by seed funds and angel investors that have not reserved significant capital for follow-on investments. A 5% equity stake could get cut down to 1%. Every single one of them had either a flat, down, or inside round during their history.
Rob Go
SEPTEMBER 2, 2014
Getting Crammed Down. If a), you reduce the cram-down risk, but also reduce the fund’s upside because you own less of your portfolio companies to begin with. I think it’s sometimes a good exercise for companies to take a step back and think about the big external threats to their businesses. This forces some level of intellectual honestly about one’s position in the market, and can push you to try to see around corners and respond.
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.)
Growthink Blog
MAY 23, 2011
This combo all too often leads to various forms of deal unpleasantness, like cram-down rounds, liquidation preferences, and change of control provisions, which in turn, often lead to unhappy founders and angel investors even in somewhat successful exits. The typical wisdom regarding the appropriate financing course for a new company goes as follows: 1.
The Next Web
SEPTEMBER 29, 2013
Sometimes you’ll see that the lifetime value of your customers has gone way down because now you’re doing volume you’ve harvested all your ‘ideal’ early adopters. With the lower evaluation, all the initial investors and the founders will be crammed down and lose a good portion of their equity.
Rob Go
MAY 21, 2014
But overall, I think there is one major issue at work, and it does come down to the culture and high-brow intellectualism of this market. Angels don’t want to look stupid by having the large number of losses required to catch winners, or get crammed down by VCs investing big dollars ahead of them. VC’s don’t want to look stupid by investing in things too early, or trying to use capital as a weapon only to go down in flames.
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. New money, usually VC money, comes in and crams down those early investors and takes substantial shares from the entrepreneur.
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