Down Rounds Are About 20 Percent of All VC Rounds

Down rounds suck and there are a lot of them around right now.

Something like 20% of all priced US rounds on Carta this year have been down rounds (where the valuation of the startup declines from the prior post-money valuation).

That's about double the historical rate of 10% - and you can see in the chart below the disparity between down rounds in primary financings vs bridge financings. Bridges are always more likely to entail some valuation declines.

If you have to point to one thing that set off this boom in down rounds, it's the shift in interest rates in early 2022. The percentage of down rounds sharply increased across stages, sectors, and locations immediately following this change.

Inflated valuations in 2021 --> interest rate changes in early 2022 --> new market expectations in late 2022 --> admitting prior exuberance, taking the down round in 2023 / 2024

Now - this is healthy for the ecosystem overall!

Many of these startups taking down rounds were going to struggle mightily to grow into their prior valuations. Hopefully these new valuations set them up for continued growth and success later on - though of course it's not easy to handle the questions from employees, investors, etc.

𝗧𝘄𝗼 𝗺𝗮𝗷𝗼𝗿 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻𝘀 𝗿𝗲𝗺𝗮𝗶𝗻:

1. When will this down round wave subside? We are 10 quarters on from the change in interest rates. How many companies have yet to make this choice but remain viable? Tough to say.

2. Will the companies who took the down exit at similar rates to those who never needed one? Haven't looked into this data but would be fascinate to explore the eventual outcomes in the two segments.

Founders - just know that many, many other companies are in the same boat, facing the same difficult questions. A down round is much better than a shutdown!

#startups #downrounds #valuations #fundraising #founders

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