Telstra Ventures general partner Yash Patel believes that the stigma surrounding down rounds is dissipating as more and more founders start warming up to the idea.
Startups were able to avoid down rounds last year by opting for alternative funding options such as venture debt or structured financing. While the other options sound lucrative, they have their own downsides, such as financial goals that come along with debt rounds and higher liquidation preferences of up to 3x multiples that come with structured financing.
- Some startups are opting for extension rounds, which allow them to keep nearly the same valuation and terms as the previous round.
- Investors advise against raising bridge financing if the company can avoid it, as investors in subsequent rounds will probably ask for similar terms going forward.
- Payments startup Stripe and online prescription company Capsule are reportedly looking to raise down rounds currently.
- Thomvest Ventures managing director Don Butler notes that big companies such as Facebook have also raised down rounds, with the social media company raising $200M at a $10B valuation after raising funds at a $15B valuation two years ago.