Tuesday, May 28, 2024
Startups

Down rounds are a ‘ticket to try again,’ says founder who raised 3 in a row

For the past year, everyone’s been predicting that the muted exit environment and bone-dry funding market would bring a reckoning for many late-stage companies.

We’ve been seeing layoffs and cost-cutting measures across the board as companies look to shore up their balance sheets. And now, an increasing number of companies are raising money at lower valuations than their last investment. Unfortunately for startups, it seems these down rounds are here to stay.

Earlier this week, Alex Wilhelm dove into new Q1 data from Carta, which showed that the number of down rounds had nearly quadrupled in Q1 2023 compared to the same time last year.

Down rounds carry a negative connotation and are often interpreted as the fault of the company or founder. But in a market where everything seems to be heading downward, they shouldn’t imply a company or its founders made a mistake — you often simply can’t help it. To VCs’ credit, many investors have been vocal over the last year about how companies shouldn’t give in to this stigma.

“When you set a $700 million valuation, it looks like you’re winning somehow and you’re not being diluted, but actually, you just raised the bar so high.” Russ Wilcox, partner, Pillar VC

This market cycle hasn’t seen a company raise a down round ahead of a successful exit yet, but startups contemplating that possibility should take heart because companies have overcome this hurdle in the past. Meta, known as Facebook at the time, is probably the best-known example. The social media company had raised a down round in 2009 before it went public in 2012 at a $104 billion valuation.

But it might be hard for a B2B sales startup to gain confidence from Meta’s story — the social media company has always seemed to operate in its own world. But there’s one company’s story that might be easier to relate to: E Ink.

For those unfamiliar, E Ink was founded in an MIT lab in 1997 and is the company that invented electronic paper, the tech widely used for displays in e-book readers like the Kindle, digital signage, smartwatches and electronic labels.

Down rounds are a ‘ticket to try again,’ says founder who raised 3 in a row by Rebecca Szkutak originally published on TechCrunch

Source link

Share with your friends!

Products You May Like

Leave a Reply

Your email address will not be published. Required fields are marked *

x  Powerful Protection for WordPress, from Shield Security
This Site Is Protected By
Shield Security