709 companies on Carta raised a down round in 2023.
Contrarian view - seeing nearly 2 down rounds per day is a good thing.
I'll unpack that in a moment, but first some more headline data:
Down rounds represented 19.7% of all rounds on Carta this year (excluding the first priced round for any companies).
That 19.7% is the highest share for down rounds in Carta history - in a typical year it averages about 10% of all rounds.
Bridge rounds were more likely than new primary rounds to be down. 23% of bridges were down rounds, but only 15% of primaries. This doesn't include convertible financings.
Essentially every industry with sufficient round volume saw their highest year of down rounds this past year - the macro changes spared nobody.
As you can see in the graphic, Crypto companies were the most likely to have a down round, followed by Consumer and Education startups.
So - why is this a good thing? Don't down rounds suck?
Yes! They do. But they suck a lot less than going out of business.
I think it's imperative that private tech shed the stigma around down rounds. Public companies are devalued every day, valuations fluctuate due to a whole host of factors - it's a little silly to assume private valuations would be up and to the right all the time.
Also - a clean down round can preserve the cap table in a way a messy, structure-filled flat round does not. If the alternative to a down round is a nominal increase that comes with high liquidation preference and other terms, it is often more beneficial for the founder (and employees) to take the down round and keep building.
I don't want to minimize the impact. It's a tough moment to admit valuation expectations got out of hand. And the founders have to explain the reasoning multiple times - to employees, to current investors, to prospective investors, to themselves.
But I'm hopeful many of these startups will be able to grow again into a reasonable valuation that doesn't crush the future with the weight of unrealistic expectations. Kudos to the founders and investors willing to admit 2021 was a sugar high.
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