The Dreaded Startup Down Round Is Beginning to Fade

Startup founders rejoice - the dreaded down round is beginning to fade.

Down rounds suck. They involve messy and difficult conversation for founders with (in no particular order) their investors, employees, prospective employees, advisors, parents, friends...everybody. Startups are often about optics, like it or not, and the down round still carries a stigma that's tough to shake.

So it's worth a smile to see them slowly retreating back to normal levels. In a typical year, about 10% of venture deals are down rounds. In recent years that's been more like 20-22%.

Of course you need to think about why the down round was so much more common in 2022, 2023, and 2024 — it's because we overfunded startups at wild valuations in 2021.

And while the down round sucks, it's a far better outcome than having to shut down a business that could have been viable if not for the overvaluation.

Seeing the tide come in from our last bout of overvaluations has me thinking though - are we setting ourselves up for a similar wave in 2027 or 2028? Have AI startup valuations raced ahead of fundamentals so much that we are doomed to repeat this cycle in a few years?

Candidly...ya, I think so.

But bubble behavior is endemic to VC startup world. And it is fun to dream big, isn't it? 😬

#startups #downrounds #valuations #founders

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