The Down Rounds Have Arrived in Q1 2023

Headline for Q1 2023 for startups: the down rounds have arrived.

About 19% of all the venture rounds raised by Carta companies in Q1 were down rounds (seed-stage thru Series F).

Aside - our Carta State of Private Markets report for the first quarter is live. I promise the 25+ charts and accompanying analysis are worth your time (hit the link in first comment to start reading).

We dig into valuations, fundraising velocity, dilution, deal terms, geo analysis, employee exercise rates...(deep breath)...409A valuations, layoffs, option repricings, bridge rounds, etc. Exhaustive 🙏

Let's return to the headline.

Down rounds - a scary phrase in startupland. Generally refers to a company raising a round of funding where the new post-money valuation is lower the pre-money valuation of the prior round.

Obviously, most entrepreneurs will do almost anything to avoid the down round. It's a logical anxiety. Raising a down round requires a recalibration of expectations from everyone (founders, investors, employees). It requires communication, especially to employees, of the value of their equity and why they should stick around despite the headwinds. It requires dealing with bad optics should the news get out.

But perhaps down rounds should be less of a death knell. Avoiding them by taking on wild terms in extension capital can be disastrous down the road. And when the market moves as suddenly as it has over the past year, it's inevitable that even good businesses will have been caught up in the whirlwind optimism.

Would love to hear from startup operators about their feeling towards down rounds. Have you gone through one at a prior company? Perhaps you were an investor in a company that took the plunge? The data says these will be much more common than before, so we may as well talk about it.

More data to come, as always, but the full report is waiting for you.

#cartadata #downrounds #startups #valuations #venturecapital #recapitalization #founders