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

Feld Thoughts

There are three things that will mess you up in the long run: Too much liquidation preference : My simple rule of thumb is that if you’ve raised more than $25m and your liquidation preference is greater than 50% of your post money valuation, you have too much liquidation preference. 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.

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.

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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 [.].

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Startup Valuations – Again….


I have written about startup valuations previously. 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]. Valuation pride.

Capital Market Climate Change

Ben's Blog

You probably thought that valuations would be roughly the same as they were the last time you raised money. And those are big companies with real earnings, so you can imagine how a private company’s valuation might fluctuate. In June of 2000, I raised money at an $820M post-money valuation. Had you not had the experience of raising your last round so easily, you might have seen this round coming. As if the price could never go down.

The Resetting of the Startup Industry

Both Sides of the Table

The startup industry may be “resetting,” which doesn’t mean a “crash” but rather just a resetting of valuations, timescales, winners/losers, capital sources and the relative emphasis of growth rates vs. burn rates. Down rounds are corrosive.

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

Both Sides of the Table

I have been talking about my concerns about valuations for the past couple of years because, well, they’ve been rising very rapidly the past two years! ” “Mark has a vested interest in talking down valuations of startups.” Why Inside Rounds are Difficult?

Burn Baby Burn

A VC : Venture Capital and Technology

As I was reading the WSJ piece, I found myself nodding my head and saying “yes”, “yes”, “yes” The thing I like so much about Bill’s point of view is that he does not focus on valuations as a measure of risk. Valuations can be fixed. 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.

Why Raising Too Much Money Can Harm Your Startup

Both Sides of the Table

I understand this instinct for more capital and I have two very different personal experiences: In my first company we raised an A-round of $16.5 A $15–20 million valuation sounds better than an $8 million valuation, doesn’t it?

Fundraising advice: Don’t over optimise on terms

The Equity Kicker

Everyone loves a high valuation and it’s natural for founders to want to minimise dilution. They will most probably go on to raise multiple rounds of venture capital after all. The biggest problem comes from chasing high valuations. Contrary to what many people think, at YC we encourage companies to seek out reasonable valuations. But I’ll say it again: trying to get really high valuations is a mistake. We think about valuation the same way.

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.”


Feld Thoughts

But a lot of these are paper unicorns, so their valuations may not be real for a while.” Last week Salesforce CEO Marc Benioff also predicted dead unicorns as startups seem to focus more on their valuations than their customers.”

Guest Post: Beware The Post Money Trap

A VC : Venture Capital and Technology

As valuations are extended and it feels very late in this cycle, I feel that the risk of this happening to entrepreneurs is quite high now. —————————————– In the current valuation environment many entrepreneurs seem to believe that only two numbers matter in a financing: the amount of the raise and the dilution. The number everyone seems to be forgetting about is the post-money valuation.

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

Both Sides of the Table

They point to some widely known facts: financings & valuations are up massively over the past 7 years and non-VC money has entered the system. As I’ve argued for ages there has to be a correlation between public tech stock valuations and private market valuations.

Address the five risks to increase your valuation.


So it is important for the entrepreneur to identify, address and mitigate each of these in order to increase valuation and decrease the risk of ultimate loss of the business. 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. In the creation of a new enterprise, there are five principal risks to be addressed by the entrepreneur.

On the Square and Match IPOs and hopes for a correction

The Equity Kicker

Match closed up 23% at a valuation of $3.5bn and Square was up 45% at a valuation of $4.2bn. However in the run up to its IPO Square had indicated it would go out at between $11 and $13 per share, and then ended up at $9, and in October last year Square raised $150m at a $6bn valuation.

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


The survey looks at the valuations and the terms of financing for over 100 technology companies in Silicon Valley that reported raising capital in the third quarter of this year. And not surprisingly, perhaps, the survey found that valuations are up.

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. Either we’ve discovered magical beans and elixir or perhaps we’ve gotten ahead of ourselves on valuation. In 2014 3 out of 12 exits were occurred at a lower valuation than the previous round.

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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.

On the Road to Recap:

One key to this population growth has been the remarkable ease of the Unicorn fundraising process: Pick a new valuation well above your last one, put together a presentation deck, solicit offers, and watch the hundreds of million of dollars flow into your bank account. In late 2015, many public technology companies saw a significant retrenchment in their share prices primarily as a result of a reduction in valuation multiples. Take a clean round at a lower valuation.

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. Lack of checks and balances on startup valuations. Later funding rounds can’t deal with a thousand shareholders.

Bad Notes on Venture Capital

Both Sides of the Table

We raised a seed round. You’ll find out the minimum when the next round is raised. At an accelerator … Me: Raising convertible notes as a seed round is one of the biggest disservices our industry has done to entrepreneurs since 2001-2003 when there were “full ratchets” and “multiple liquidation preferences” – the most hostile terms anybody found in term sheets 10 years ago. How will you price the next round? Your A round?

How do VCs measure their success (and why you should care)?


Primarily these things: Companies dissolvingCompanies exitingCompanies raising equity rounds All of these events are concrete events that attach a numerical value to a company. And, lastly, when companies raise an equity round, there is another investor who has (in theory) done due diligence and assessed that a company is worth a certain amount. If a company raises a good round, it gets marked up to the new value. And if a company takes a down-round, it gets marked down.

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Why Startups Should Raise Money at the Top End of Normal

Both Sides of the Table

2: As expected at least one person accused me of writing this post because I want to see lower valuations. If you invested in the first angel round of a startup company it is usually very hard to sell your stock – usually for many years if ever at all.

Using warrants to pump up your VC valuation

How to pump up your VC valuation. Let’s say you receive a term sheet for a $1 million investment at a $3 million fully diluted pre-money valuation, and you’re kind of disappointed. One possibility is to negotiate a higher valuation and offer warrants (i.e.,

The downside of high valuations


Valuations are high. In times of rising valuations, it is important for entrepreneurs to think about their long term funding strategy and choose a valuation that is sustainable not just today but over the whole life cycle of your company. When we hear about high pre-money valuations for companies like Quora it can be tempting to demand higher valuations for your own company.

What is actually happening during a VC slowdown?

This is going to be BIG.

Fear, not surprisingly, weighs markets down. Now that they have to go back into the market next year to pitch their own fund, they're going to have to answer some tough questions about valuations. They might have to get another round in, and that round will most certainly be a down round. The public markets have been stumbling around lately, trying to figure out what China and oil prices mean for the rest of the world economy.

An Inside Scoop on the Funding Environment and What it Might Mean for You

Both Sides of the Table

Six firms had expressed strong interest, two had strong champions already trying to test price and round size and one had made it clear they were planning to submit a term sheet the following week. With “uncertainty” taking hold, rounds were taking longer to complete.

Keep Term Sheets Simple for Quicker Cash to Spend


The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” The pre-money valuation is company value today, while the post-money valuation is the pre-money valuation plus the investment amount.

What is the Right Burn Rate at a Startup Company?

Both Sides of the Table

” Stay lean and only raise a big round if you DO find product / market fit and which point you want to loosen the belt quickly and raise the capital to do so. Of course a lot of this also comes down to investor trust. Valuation. I wanted to call out special attention to valuation in this debate. So a large part of your personal assessment on how much you can afford to burn also has to be your current valuation.

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%). private valuations > $1 billion) like Acquia, Actifio, Affirmed, Veracode and Simplivity.

3 Business Models Venture Capitalists Love

Inc Startups

Then there’s the promising young company that actually has $20 million in sales but only manages to eek out a valuation of $200 million. Nothing is more important than calibrating an appropriate valuation for your company. You want the valuation that sets achievable expectations.

Keep Term Sheets Simple for Quicker Cash to Spend

Startup Professionals Musings

The price is the percent of ownership given to the investor, calculated as “investment/post-money valuation.” The pre-money valuation is company value today, while the post-money valuation is the pre-money valuation plus the investment amount.

The downside of accelerated investment decisions

Chris Dixon

There has been a lot of talk about how early-stage valuations have risen dramatically over the past few years. Sadly, founders with bad investors will likely face punishing down rounds, key employees being indiscriminately fired, and elaborate financial shenanigans engineered to dilute founders and seed investors. Financially, this is probably good for founders and bad for investors. But a side effect of this frothy market is that financings are occurring much faster.

Don't Ignore These 4 Start-up Lessons

Inc Startups

High valuation for an early stage start-up is not always good. A high valuation for a young company is only good if the business can continue to meet market and investor expectations.

Sustainable startup growth and venture capital

The Equity Kicker

On Friday it seemed like everyone in the venture capital industry was again reading about market turmoil, this time the news is that angel investors are pulling back and valuations taking a hit. However severe our current situation is, I’m sure there will be plenty of short term negatives, including more job losses, company failures and down rounds. The best startups capture all the returns so focusing too much on entry valuation is a mistake.

Capital Market Climate Change

Ben's Blog

You probably thought that valuations would be roughly the same as they were the last time you raised money. And those are big companies with real earnings, so you can imagine how a private company’s valuation might fluctuate. In June of 2000, I raised money at an $820M post-money valuation. Had you not had the experience of raising your last round so easily, you might have seen this round coming. As if the price could never go down.

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. It’s nice to get great valuations and hire A-players.

When to reach for the stars

Hazard Lights

As anyone who follow the start-up world knows, valuations for high potential young companies as of late have been trending upward (how's that for an understatement) and are fairly divorced from underlying traditional (ie revenues and earnings) metrics.