Avoiding the Hated Down Round
Bloomberg Businessweek US|January 30, 2023
Struggling private companies are finding creative ways to raise cash without accepting a lower valuation
Hema Parmar, with Loukia Gyftopoulou and Linly Lin
Avoiding the Hated Down Round

For startups that rode the tech boom to soaring valuations, few things are harder to swallow than the dreaded down round. It happens when backers throw fresh money at a fast-growing business and demand more equity than previous investors got for a similar amount of cash. The result is a decline in value-sometimes by an embarrassing amount.

It's such a badge of dishonor in Silicon Valley (not to mention alarming to employees with stock options) that private companies and investors are coming up with inventive workarounds. Private markets have few disclosure requirements, so most of the maneuvers aren't made public. "What they try to do is sort of defeat reality," Tom Slater, a Baillie Gifford fund manager whose firm buys stakes in private companies, said at a conference earlier this month. "Do you want to accept reality that your valuation has fallen by 50%? Because that's potentially quite disruptive internally."

Structuring deals with confidential perks, such as promising investors discounted shares in a potential public offering, is one way to avoid a down round, says Next Round Capital Partners founder Ken Smythe, who helps startups obtain financing. "Everyone is trying to avoid marking their company down," he says. "There are many flavors to these structured deals, but what's constant is that it's unpriced, so you're basically kicking the can down the road on the valuation."

Last year was especially tough on cash-starved startups. The amount of money invested in private companies in the first nine months of 2022 dropped 33% from the same period in 2021, according to GlobalData Plc. By the end of November, investors were getting shares of closely held companies in the secondary market at a record 50.5% median discount off the price set in the most recent funding round, says Forge Global Holdings Inc.

هذه القصة مأخوذة من طبعة January 30, 2023 من Bloomberg Businessweek US.

ابدأ النسخة التجريبية المجانية من Magzter GOLD لمدة 7 أيام للوصول إلى آلاف القصص المتميزة المنسقة وأكثر من 9,000 مجلة وصحيفة.

هذه القصة مأخوذة من طبعة January 30, 2023 من Bloomberg Businessweek US.

ابدأ النسخة التجريبية المجانية من Magzter GOLD لمدة 7 أيام للوصول إلى آلاف القصص المتميزة المنسقة وأكثر من 9,000 مجلة وصحيفة.

المزيد من القصص من BLOOMBERG BUSINESSWEEK US مشاهدة الكل
Instagram's Founders Say It's Time for a New Social App
Bloomberg Businessweek US

Instagram's Founders Say It's Time for a New Social App

The rise of AI and the fall of Twitter could create opportunities for upstarts

time-read
4 mins  |
March 13, 2023
Running in Circles
Bloomberg Businessweek US

Running in Circles

A subscription running shoe program aims to fight footwear waste

time-read
3 mins  |
March 20 - 27, 2023
What I Learned Working at a Hawaiien Mega-Resort
Bloomberg Businessweek US

What I Learned Working at a Hawaiien Mega-Resort

Nine wild secrets from the staff at Turtle Bay, who have to manage everyone from haughty honeymooners to go-go-dancing golfers.

time-read
10 mins  |
March 20 - 27, 2023
How Noma Will Blossom In Kyoto
Bloomberg Businessweek US

How Noma Will Blossom In Kyoto

The best restaurant in the world just began its second pop-up in Japan. Here's what's cooking

time-read
3 mins  |
March 20 - 27, 2023
The Last-Mover Problem
Bloomberg Businessweek US

The Last-Mover Problem

A startup called Sennder is trying to bring an extremely tech-resistant industry into the age of apps

time-read
10+ mins  |
March 20 - 27, 2023
Tick Tock, TikTok
Bloomberg Businessweek US

Tick Tock, TikTok

The US thinks the Chinese-owned social media app is a major national security risk. TikTok is running out of ways to avoid a ban

time-read
10+ mins  |
March 20 - 27, 2023
Cleaner Clothing Dye, Made From Bacteria
Bloomberg Businessweek US

Cleaner Clothing Dye, Made From Bacteria

A UK company produces colors with less water than conventional methods and no toxic chemicals

time-read
3 mins  |
March 20 - 27, 2023
Pumping Heat in Hamburg
Bloomberg Businessweek US

Pumping Heat in Hamburg

The German port city plans to store hot water underground and bring it up to heat homes in the winter

time-read
3 mins  |
March 20 - 27, 2023
Sustainability: Calamari's Climate Edge
Bloomberg Businessweek US

Sustainability: Calamari's Climate Edge

Squid's ability to flourish in warmer waters makes it fitting for a diet for the changing environment

time-read
4 mins  |
March 20 - 27, 2023
New Money, New Problems
Bloomberg Businessweek US

New Money, New Problems

In Naples, an influx of wealthy is displacing out-of-towners lower-income workers

time-read
4 mins  |
March 20 - 27, 2023