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

Feld Thoughts

This is a little tricky in early rounds and with modest up-round financings, as you’ll often have a liquidation preference that is high relative to your overall valuation. 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. Venture Capital cap table down round Financing VC

How Do I Protect My Option Grant From A Down Round In The Future?

Ask The VC

Question: I am considering joining a startup that is currently in the process of raising their next round of funding. I will be joining as a VP, reporting directly to the CEO, and considered an “executive” Given the environment for this particular industry, it is very likely that the company will face a down round – perhaps as much as 50% of their last financing a year ago. Will my options be priced based on the previous round?

The Damaging Psychology of Down Rounds

Both Sides of the Table

“Whenever I hear advice about pricing a round too high for the next round, I can’t help but think: well, if the choice (ceteris paribus) is between. I would love it if other people would weigh in on the comments section below if you’ve had experiences with down rounds.

Cash is King: 8 tips for Optimizing your Startup Financing Strategy

For Entrepreneurs

Getting Funded avoid down round Startup fundraising startup valuationIntroduction 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. Despite that, our experience indicates that entrepreneurs frequently make costly, avoidable mistakes [.].

CES Quote of the Day - "We Will Be Very Supportive Of Your Down Rounds This Year".

Seeing Both Sides

Although attendence was down, it is still an insanely large audience of 130,000 attendees and 2,700 companies. CEA head Gary Shapiro reported in his keynote that industy sales were up over 5% and that 2009 will be flat or slightly down. But one look at all the frozen cranes up and down the strip is all you need to know that Sin City is in for a tough run in 2009 and 2010. But Intel Capital will be happy to invest in their down rounds

Fenwick & West - Venture Capital Survey Silicon Valley Third Quarter 2011

Recent Buzzes - VC Experts, Inc.

Up rounds exceeded down rounds in 3Q11 70% to 15%, with 15% of rounds flat. This was an increase from 2Q11 when up rounds exceeded down rounds 61% to 25%, with 14% of rounds flat. Series B rounds were exceptionally strong, comprising 38% of the relevant rounds (Series A rounds aren't included as there is no prior round for comparison purposes), and 89% of the Series B rounds were up rounds.

Venture Capital Survey Silicon Valley Second Quarter 2011

Recent Buzzes - VC Experts, Inc.

Up rounds exceeded down rounds in 2Q11 61% to 25%, with 14% of rounds flat. Although this was a slight decline from 1Q11, when up rounds exceeded down rounds 67% to 16%, with 17% of rounds flat, it was still a very healthy performance. This was the eighth quarter in a row in which up rounds exceeded down rounds

Current Startup Market Emotional Biases

Feld Thoughts

Fred Wilson’s daily post referred to the article in Don’t Kick The Can Down The Road. 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? Anything that hints of a down round brings questions about the success metrics that have already been “booked.”

In a board room, somewhere in Silicon Valley…

Venture Hacks

… a founder, a VC, and his Associate negotiate a down round. Very NSFW. Video: Old Face Andre talks economics with Omar. Another business lesson from The Wire — about intellectual property: “It ain’t about right, it’s about money.&#.

Anti-Dilution Provisions - An Example

Recent Buzzes - VC Experts, Inc.

Anti-Dilution provisions can be a key negotiating point when it comes to the Deal Terms of a new round of financing, especially in the presence of a. Down Round

The Resetting of the Startup Industry

Both Sides of the Table

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. If you can get a round done at the price you expect – well done.

What Most People Don’t Understand About How Startup Companies are Valued

Both Sides of the Table

” “Mark has a vested interest in talking down valuations of startups.” No you’re kind of f *d because nobody wants to buy any at all and your bank is calling you concerned that you may need to slow down your pace of new purchases for a bit. Down rounds are hard.

Small Investors


The treatment of the friends, family and angels (FFA) as the startup matures and raises larger rounds of financing over time is interesting. 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).

Venture Capital Survey - Silicon Valley First Quarter 2010

Recent Buzzes - VC Experts, Inc.

Patrick which found 1Q10 results were similar to 4Q09, with up rounds exceeding down rounds in 1Q10 49% to 32%, with 19% of the rounds flat. In 4Q09 up rounds exceeded down rounds 47% to 30%, with 23% flat. This was the third quarter in a row in which up rounds exceeded down rounds. Fenwick & West LLP. ,

Burn Baby Burn

A VC : Venture Capital and Technology

You can do a down round, or three or four flat ones, until you get the price right. Andy sent me a WSJ piece with Bill Gurley yesterday. I don’t like to link to paid content so here’s a good Business Insider summary of the article that is open for anyone to read. Regular readers know that I’m a huge fan of Bill’s. He’s as smart as they come and I generally agree with him on things.

How to Talk About Valuation When a VC Asks

Both Sides of the Table

What was the post money on your last round (and how much capital have you raised)? It’s not uncommon for a VC to ask you how much capital you’ve raised and what the post-money valuation was on your last round. VCs hate “down rounds” and many don’t even like “flat rounds.”

Q&A Roundup

Secret Formula

When I sit down with folks like this to explore a financing, we typically start with a generic Excel template that has all the formulas pre-wired. Q: It’s incorrect that down rounds selectively dilute common stockholders.

Fundraising advice: Don’t over optimise on terms

The Equity Kicker

They will most probably go on to raise multiple rounds of venture capital after all. And don’t forget the prime directive of fundraising strategy: set things up so that you never do a down round. The badness of a down round is difficult to overstate; in fact, the threat of that is the best reason not to take a super high price when you’re offered one. If you raise at such a price, everything has to go perfectly in order for your next round to be an up one.


Feld Thoughts

The current usage of the word unicorn makes me tired. I could rant about it for a while, but that would make me tired of myself ranting about it.

Spreadsheets in legal documents

The Equity Kicker

I’ve been here before too, when implementing anti-dilution clauses after down-rounds. I have spent a considerable part of today translating the equalisation clauses in our Limited Partnership Agreement into formulas in a spreadsheet.

Pro-rata Rights For Angels

Ask The VC

When VCs invest in rounds, they set a threshold for “major investors” and, if you aren’t a major investor, you lose your pro-rata rights. I did also when I invested as an angel, although my angel strategy was to invest in only the first two rounds. As an angel, I’d do the seed round, then one more round if needed, and then I’d stop. I know many VC investors who aggressively cut angels out of the pro-rata rights in later rounds.

Venture Capital Survey - Silicon Valley Fourth Quarter 2009

Recent Buzzes - VC Experts, Inc.

Patrick which found Up rounds exceeded down rounds in 4Q09 47% to 30%, with 23% of rounds flat. This was an improvement over 3Q09 when up rounds exceeded down rounds 41% to 36%, with 23% flat. Fenwick & West LLP. ,

Guest Post: Beware The Post Money Trap

A VC : Venture Capital and Technology

Combined with a lot of money being available from investors this is resulting in Series A rounds of $10 million and more. It needs to build enough value so that the next round of fundraising can be at or ideally above the current post money valuation. Another, less common, founder objection is: well, if necessary we will just do a down round. This ignores that down rounds are incredibly hard to do. My partner Albert wrote this a few weeks ago.

Venture Capital Survey - Silicon Valley Third Quarter 2009

Recent Buzzes - VC Experts, Inc.

Patrick which found up rounds exceeded down rounds in 3Q09, 41% to 36%, with 23% flat. This was the first time that up rounds have exceeded down rounds in 2009 and the percentage of inside rounds decreased from approximately 42% in 2Q09 to 33% in 3Q09. Fenwick & West LLP.,

Dilution concerns by founders and investors

Taffy Williams

For this reason, capital raises should take place with increased valuation increments; e.g., the last shareholders bought at $1 / share, the next round is at $5 /share. Terms like “cram-down” or “down-round” originated from such events over the last 10 years or so.

Anti-Dilution Provisions - An Example

Recent Buzzes - VC Experts, Inc.

Anti-Dilution provisions can be a key negotiating point when it comes to the Deal Terms of a new round of financing, especially in the presence of a. Down Round. By VC Experts Analyst Team. Broad Based Weighted Average can be a more friendly provision as compared to. Full Ratchet when it comes to the effects of equity % held by early investors and founders. See how these terms can differ when it comes to the structure of the. Cap Table and also at exit in the Waterfall.

The State of Cleantech Venture Capital, Part 3: The Companies

Secret Formula

Entrepreneurs who raise big financing rounds at sky-high valuations can end up shooting themselves in the foot. The average VC-backed company that goes public in this sector raises about $120 million through five rounds of financing along the way.

On the Square and Match IPOs and hopes for a correction

The Equity Kicker

So the share price has been trending down for some time before popping after the IPO. I say that because investors in the $6bn round in Square have still made money on the deal. and Square both enjoyed strong first days after their IPOs yesterday.

Keep Term Sheets Simple for Quicker Cash to Spend


Venture capitalists and later round investors like the preferred convertible shares. This clause attempts to protect the conversion price of stock of angel investors, prior to additional financing, from being reduced to a price equal to the price per share paid in a later “downround.

Professional Investors Qualms About Crowdfunding

Startup Professionals Musings

I would summarize the views and qualms from professional investors as the following: Crowdfunding platform costs could trickle down to angel groups. Later funding rounds can’t deal with a thousand shareholders.

What Did And Did Not Happen In 2016

A VC : Venture Capital and Technology

I predicted “markdown mania” would hit the tech sector hard and employees would start getting cold feet on startups as they saw the value of their options going down. There was some of that and employees are certainly more attuned to how they can get hurt in a down round or recap, but the tech sector has also used a lot of techniques, including repricing options, reloading option plans, and moving to RSUs, to mitigate this.

Russia 219

Venture Outlook 2016

Both Sides of the Table

On the chart below, 78% of the rounds of 80 $1bn+ companies were led by non VCs. Here is a chart to show you the median valuation of late stage private tech companies compared to traditional growth rounds of capital led by VCs and also vs. the public markets. 25% “down rounds?

IPO 203

A Recently Exited Founder on Surviving the Contradictory Role of Startup CEO

View from Seed

I called the recruiter running the search and told him I was going to step down and hire a CEO. Other CEOs are the only people you can sit down and talk with about the hardest parts of your job.

Silicon Valley Venture Capital Survey Finds That, Yes, Valuations Are Up


According to Barry Kramer, a partner in the firm and a co-author of the survey, during the third quarter, "up rounds exceeded down rounds 52% to 30% with 18% flat. The law firm Fenwick & West LLP has released its Third Quarter 2010 Silicon Valley Venture Capital Survey.

A Cap is not a Valuation

Bryce Dot VC

Most had structured their seed rounds as bridge notes (a fancy term for a loan) that would convert to equity when the anticipated future round of funding closed. Many of the companies with notes we evaluated had valuation caps on them; meaning, if the new investor priced the round higher than the cap the seed investors would reap the benefits of a lower valuation given the earlier risk they’d taken.

What Do Industry Insiders Think Will Happen in VC in 2016?

Both Sides of the Table

So why the slow down all of a sudden? 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. More structured rounds.

Startup Valuations – Again….


This morning I was reading one of my favorite daily compilations of articles (called Innovation Daily, subscribe here ) and came across another great short article on startup valuations called “ Seed Rounds: How to Pick a Valuation “ Joseph Walla, who I don’t know, wrote it. A founder is about to raise their first round and asking me how to value their company. [1]. Hopefully, it’s in high demand for good reasons, otherwise you risk a down round in the future.

Changes in the Venture Capital Funding Environment

Both Sides of the Table

In other words, it isn’t that VCs suddenly got smart, it’s that the costs of starting a company went down dramatically. I Leaderless Rounds. Non VC Growth Rounds. The market eventually slowed down. 3VCs agreed to fund an inside round and cut costs.

Analyzing Boston's Reindeer (Not Unicorns)

Seeing Both Sides

Yelp is down 49% YTD, Box is down 41%, Hortonworks is down 24%). A few years ago, I did an analysis on the Boston-based companies that were worth more than $500 million in value, which I called Boston Unicorns.

Premature scaling at Series B

The Equity Kicker

It all comes down to probabilities in the end – anyone can get lucky – the trick is getting a handle on how lucky your plan requires you to be… The article describes how it goes wrong in two ways, firstly: Your company is growing and scaling well, often on little invested capital.