Alternatives to a Down Round

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

During down markets, the founder may find it a challenge to raise funding at a higher valuation than the last round.

If the company is not doing well, there's the possibility of a down round.

Instead of a down round, consider the following:

Raise more funding but at the same valuation as the last round.

This move sideways avoids the down round but generates more funding to continue the growth.

Run an internal raise giving existing investors a lower valuation.

This works best by offering investors the option to invest more at the same valuation as their original investment.

Current investors gain more shares at their original valuation but in a company that has progressed further.

Reduce the amount of funding raised but at a slightly higher valuation.

This generates some funding for critical needs but doesn't dilute the previous investors as much as a down round.

Finally, the founders could avoid a down round by giving up some of their shares to compensate new investors joining the round.

This could be structured as warrants.

Consider these steps for avoiding a down round in your startup.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let's go startup something today.

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