Both Sides of the Table

JUNE 22, 2011

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.&#.

Saudi Arabia 309

Saudi Arabia Valuation IPO Technical Review 309

Berkonomics

AUGUST 3, 2023

Some businesses require very little capital and the founder can self-finance the enterprise and retain 100% of its ownership and control from ignition through liquidity event (startup through sale). For those of you who fit that description, nice work. There is a lot to say about retaining control.

Private Equity 118

Private Equity Valuation Cap Table Accredited Investor 118

ReadWriteStart

JUNE 1, 2020

Instead of funding, you pay the investors a structured royalty, which is a portion of the sales. But, in subsequent rounds of funding inflated valuation will be normalized resulting in a down round. You might have seen that valuations of several unicorns were suddenly slashed down. Royalty based investment.

Startup 150

Startup Entrepreneur Elevator Pitch Seed Stage 150

Hunter Walker

AUGUST 8, 2023

Restructures, Down Rounds, and Pay to Plays. As The Information proclaims, “ Unicorn Fire Sales Ahead.” Whatever gets reported is just the tip of the iceberg.

Portfolio 98

Portfolio Cap Table LP Valuation 98

Berkonomics

MARCH 30, 2010

It is not a strong bargaining position for the CEO to ask for money to complete a product promised for completion with the previous round of funding. Not long after, the company was sold in a “fire sale” amounting to slightly less than the debt on the books. All investors, including the VC firm, lost everything.

Silicon Valley 85

Silicon Valley Burn Rate Angel Investor Down Round 85

Berkonomics

OCTOBER 18, 2018

For investors, a subsequent down round at a lower valuation than the last, or an exit opportunity at a loss are all opportunities for the affected stakeholder to show a side that can sometimes shock an entrepreneur or CEO. That one hurts early investors and founders more than perhaps any other action by investors.

Valuation 96

Valuation Dilution Down Round Employee 96

NZ Entrepreneur

SEPTEMBER 16, 2020

Key Variables to Consider: Sales units. Founders are typically ambitious when projecting sales volumes. Some common drivers of sales underperformance include product-market fit challenges, slow/low sales channels, and poor execution. What if the number of sales is much less than expected? Timing of sales.

Startup 69

Startup Sales Cycle Down Round Revenue 69

The Equity Kicker

JANUARY 22, 2014

A few quarters in, you realize that product/market fit is not quite there, or you’re not as far up the sales learning curve as you thought, or your LTV/CAC is suddenly in the toilet. 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).

Venture Capital 102

Venture Capital Down Round Valuation Lean 102

Seeing Both Sides

JANUARY 9, 2009

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 Intel Capital will be happy to invest in their down rounds.

Down Round 20

Down Round Forecast Portfolio Government 20

Berkonomics

JUNE 8, 2017

Some businesses require very little capital and the founder can self-finance the enterprise and retain 100% of its ownership and control from ignition through liquidity event (startup through sale). For you who fit that description, nice work. There is a lot to say about retaining control.

Private Equity 106

Private Equity Valuation Cap Table Accredited Investor 106

Startup Company Lawyer

MARCH 14, 2010

The only practical situation that I can think of where a dividend preference is beneficial to a stockholder is where a company does a partial sale of assets and wishes to distribute the proceeds to stockholders. Co-sale rights. Changes in preferred and merger/sale of assets only. Right of first refusal and co-sale agreement.

Finance 70

Finance Software Review Term Sheet Liquidation Preference 70

Both Sides of the Table

FEBRUARY 8, 2016

But I would point out that raising money is an existential event and I think in the coming 12-18 months you may see loss ratios (companies going out of business or selling in fire sales) go up. Don’t assume that you can “just do a down round” if necessary. Down rounds are corrosive.

Burn Rate 150

Burn Rate Cap Table Balance Sheet Dilution 150

View from Seed

FEBRUARY 19, 2015

In 2010, we were recruiting for a Senior Vice President of Sales and Marketing for Backupify, and it was clear that many of the people I was interviewing wanted the CEO role. I called the recruiter running the search and told him I was going to step down and hire a CEO. Disclosure: NextView was not an investor in Backupify.).

Founder 120

Founder Startup Cofounder Business Model 120

Scalable Startup

JANUARY 27, 2011

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. I was once VP of Sales for a startup that went from zero to >$10 million in one year, then back to zero the following year. Are we becoming passé? What about users?

Revenue 22

Revenue Early Stage Down Round Software Review 22

Business Plan Blog

OCTOBER 8, 2013

In order to launch a successful business and raise the capital needed to do so, a startup needs to consider several aspects of the business including the management team , the size of the opportunity, the product/service/technology, the market/sales/distribution channels, the competitive environment and several other factors.

Business Plan 67

Business Plan NDA Exit Strategy Valuation 67

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. When you invest in a Momentum company, everyone immediately congratulates you on your wisdom, sales skill, and success. .

Venture Capital 60

Venture Capital Valuation Stock NDA 60

Berkonomics

OCTOBER 7, 2011

For investors, a subsequent down round at a lower valuation than the last, or an exit opportunity at a loss are all opportunities for the affected stakeholder to show a side that can sometimes shock an entrepreneur or CEO.

Valuation 54

Valuation Dilution Down Round Employee 54

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

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

thebarefootvc

AUGUST 26, 2015

As someone who invested through the 2001 and 2008 crashes I can assure you that down rounds and fire sales are not fun for anyone involved. I am not a fan of frothy markets – I believe accurately valued companies at all stages lead to a healthier market for investors and entrepreneurs.

Marketing 40

Marketing Investment Bankers Valuation China 40

thebarefootvc

AUGUST 26, 2015

As someone who invested through the 2001 and 2008 crashes I can assure you that down rounds and fire sales are not fun for anyone involved. I am not a fan of frothy markets – I believe accurately valued companies at all stages lead to a healthier market for investors and entrepreneurs.

Marketing 40

Marketing Investment Bankers Valuation China 40

thebarefootvc

JULY 26, 2015

As someone who invested through the 2001 and 2008 crashes I can assure you that down rounds and fire sales are not fun for anyone involved. I am not a fan of frothy markets – I believe accurately valued companies at all stages lead to a healthier market for investors and entrepreneurs.

Marketing 40

Marketing Investment Bankers Valuation China 40

Hippoland

NOVEMBER 13, 2016

Primarily these things: Companies dissolvingCompanies exitingCompanies raising equity rounds All of these events are concrete events that attach a numerical value to a company. Companies that exit are valued at whatever the sale is. If a company raises a good round, it gets marked up to the new value.

IRR 48

IRR Valuation Portfolio Due Diligence 48

VC Cafe

SEPTEMBER 26, 2022

Sustainable growth: Prioritise sales efficiency over growth at all costs. Many startups that raised money in 2021 on inflated valuations that were detached from their actual value, are struggling to raise up-rounds and face difficult choices these days: down rounds, early sellout or failing altogether.

Founder 187

Founder Startup Valuation Pre-Money Valuation 187

Berkonomics

JANUARY 20, 2010

Some businesses require very little capital and the founder is able to self-finance the enterprise and retain 100% of its ownership and control from ignition through liquidity event (startup through sale). For you who fit that description, nice work. There is a lot to say about retaining control.

Private Equity 69

Private Equity Valuation Cap Table Accredited Investor 69

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

abovethecrowd.com

APRIL 20, 2016

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? A down round is nothing. Get over it and move on.

IPO 40

IPO Term Sheet Silicon Valley Valuation 40

Rob Go

JUNE 1, 2016

This company may end up salvaging some value in a sale, but it could also be a near total loss, which is tough to swallow. Where I think funds do start having hard conversations around follow-ons is when they need to lead inside rounds or protect themselves in down rounds.

Term Sheet 28

Term Sheet Portfolio Valuation Warrant 28

Altgate

MARCH 8, 2009

Growth stage investors are usually the Series B or C investors who come in when the product is in the market but there is little or no revenue and the team is probably in the 20-something range with the goal to ramp it up to 40-50 employees with the new money, build out a sales team, etc. But some will be saved.

Later Stage 34

Later Stage Early Stage Venture Capital Portfolio 34

Both Sides of the Table

MARCH 30, 2016

forward sales with some as high as 12x sales. Collectively we chose growth and the market was rewarding high growth rates over any other factor so we felt that we ought to bring in an experienced CEO who had taken companies public, who had led large, international sales organizations and who was poised to take Invoca to the next level.

Balance Sheet 150

Balance Sheet Burn Rate Valuation Forecast 150

Reid Hoffman

JUNE 8, 2021

At the time, they said, it’s not enough to design a product that’s good for sales, it must also be good for the environment. 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.

Silicon Valley 69

Silicon Valley Hosting Rhode Island Design 69

www.paulgraham.com

APRIL 28, 2010

For example, VCs generally write it into the deal thatin any sale, they get their investment back first. Some VCsnow require that in any sale they get 4x their investment backbefore the common stock holders (that is, you) get anything, butthis is an abuse that should be resisted.

Technical Review 76

Technical Review Startup Software Review Angel Investor 76

Reid Hoffman

JUNE 8, 2021

At the time, they said, it’s not enough to design a product that’s good for sales, it must also be good for the environment. 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.

Silicon Valley 36

Silicon Valley Hosting Rhode Island Design 36

Scalable Startup

FEBRUARY 1, 2013

So the best technology for inventory management and for financial planning and for sales-force management and for online marketing can now be used just as easily or more easily by a small business. And they don’t buy sales-force automation software, they rent on Salesforce.com. Marc Andreessen: No, we have not seen down rounds yet.

Software Review 22

Software Review Startup Venture Capital Stock 22

VC Cafe

MAY 18, 2022

Down rounds are coming. Thomasz Tunguz from Redpoint Capital shared 4 scenarios that startups should be contemplating now depending on their sales efficiency and cash reserves. Source: Pitchbook NVCA Venture Monitor. David Sacks offers a few benchmarks on growth rates (revenue), gross margins, CAC payback and burn.

Term Sheet 190

Term Sheet Startup Valuation Ukraine 190