The advantage of unicorn down-rounds

Now is the time for some VC-backed “unicorns” to consider down-rounds. Not just because the conditions may suggest them, but because they cause relatively little reputational damage.

Be smart: If everyone raises a down-round, does anyone raise their eyebrows?

Three things we know:

  1. Many VC-backed companies worry that their leads are too short.
  2. Many of these same companies once made a big deal out of their nosebleed ratings, even putting them in the headlines of press releases and calling themselves unicorns.
  3. Venture capital and growth equity funds are teeming with cash, but under pressure from limited partners to be more conservative.

The context: Do you remember the early days of the pandemic, when industries like hospitality were staring at the headstones? And companies like Airbnb have raised new, often highly structured capital at much lower valuations? Nobody held it against Airbnb, of course, and it later went public and now sports a market capitalization of $65 billion.

  • June 2022 is very different from March 2020, but some of the same principles apply. Survival is paramount.
  • And if that means doing a down-round, so be it. Even if that comes with a bit of founder dilution, new stock option grants, or seeing your venture capital backers crack a smug grin.

Advice: Don’t try to hide a bad run from the media and then fall back on an admission because of a leak. And that goes double for telling employees.

  • There is strength in making a difficult decision, even if it highlights the pride of the past. Own it and live to fight another day.

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