For the previous yr, everybody’s been predicting that the muted exit atmosphere and bone-dry funding market would carry a reckoning for a lot of late-stage corporations.
We’ve been seeing layoffs and cost-cutting measures throughout the board as corporations look to shore up their steadiness sheets. And now, an growing variety of corporations are elevating cash at decrease valuations than their final funding. Sadly for startups, it appears these down rounds are right here to remain.
Earlier this week, Alex Wilhelm dove into new Q1 knowledge from Carta, which confirmed that the variety of down rounds had almost quadrupled in Q1 2023 in comparison with the identical time final yr.
Down rounds carry a adverse connotation and are sometimes interpreted because the fault of the corporate or founder. However in a market the place every part appears to be heading downward, they shouldn’t suggest an organization or its founders made a mistake — you usually merely can’t assist it. To VCs’ credit score, many buyers have been vocal over the past yr about how corporations shouldn’t give in to this stigma.
“While you set a $700 million valuation, it seems to be such as you’re profitable someway and also you’re not being diluted, however really, you simply raised the bar so excessive.” Russ Wilcox, associate, Pillar VC
This market cycle hasn’t seen an organization elevate a down spherical forward of a profitable exit but, however startups considering that chance ought to take coronary heart as a result of corporations have overcome this hurdle prior to now. Meta, often known as Fb on the time, might be the best-known instance. The social media firm had raised a down spherical in 2009 earlier than it went public in 2012 at a $104 billion valuation.
But it surely is likely to be laborious for a B2B gross sales startup to realize confidence from Meta’s story — the social media firm has all the time appeared to function in its personal world. However there’s one firm’s story that is likely to be simpler to narrate to: E Ink.
For these unfamiliar, E Ink was based in an MIT lab in 1997 and is the corporate that invented digital paper, the tech extensively used for shows in e-book readers just like the Kindle, digital signage, smartwatches and digital labels.
