What’s the best way to navigate your down round?

Mark Suster (Managing Partner at Upfront Ventures)
What Most People Don’t Understand About How Startup Companies are Valued | Bothsides of the Table

Down rounds are hard. A slight down round is achievable but massive “hair cuts” are very hard to do. For starters most new investors don’t want to piss off existing investors by forcing a lower price because they know they’ll have to work together again in the future. It’s easier to pass and just look at your next deal.

Mark Suster (Managing Partner at Upfront Ventures)
What Most People Don’t Understand About How Startup Companies are Valued | Bothsides of the Table

Down rounds trigger anti-dilution provisions. And down rounds might favor later-stage investors over earlier-stage investors who get wiped out. Or down rounds might favor earlier-stage investors because the liquidation preferences of later stage investors get reduced. Investors will be worried that the down round will cause founders or senior management to depart and no VC wants to replace management.

Mark Suster (Managing Partner at Upfront Ventures)
What Most People Don’t Understand About How Startup Companies are Valued | Bothsides of the Table

Down rounds are corrosive. Insiders hate them and fight them. Outsiders hate them because they are worried about pissing off your existing investors. Employees hate them because it’s hard to reset expectations that their stock is worth less. Founders hate them because they’re dilutive. The terrible consequence is that some great companies struggle to get financed. New investors often prefer to back newer companies that have never been through thi… (read more)