Sharing is caring, right? Not always for venture capital deals.
Chart above tracks the percentage of primary venture capital rounds that were pari-passu for a given stage and year.
(Pari-passu, from the Latin "equal footing", is a type of investor preference where all preferred shareholders in a company have equal distribution rights during a liquidation event.)
In the boom times of 2021, everyone was happy to have equal distribution rights. Sharing is easy when everything is up and to the right.
In 2022 and 2023, however, new investors were a lot less chummy. They signed a higher share of deals that gave them preferential rights over earlier investors in the event of an exit.
It's heartening to see that trend reverse itself so far in 2024 across basically every stage. Pari-passu deals are a reasonable measure of ecosystem health, in my view. Tougher times bring out sharp elbows and sunny periods make for cleaner, more equal deals.
Who knew kindergarten lessons would apply so directly?
By the way - new data on valuations and round sizes in Q3 to be published in the coming days at our new home for startup data: carta.com/data. Stay tuned!
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Peter Walker
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