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They’ll need to raise more capital, and while the strongest startups might continue to do so with few strings attached, others will face two options: raise more money at the same valuation but also more “structure,” in VC parlance, or start over from a valuation standpoint. Still, after years of chasing growth, many startups won’t be able to shift gears fast enough. In the roughly three months since the winds shifted in the startup market, the messaging to startups has been to reduce burn and do it quickly by laying off employees, shelving projects, freezing research and development, and slashing other expenses to become more self-sustaining. Court says he learned then that “trying to readjust things or maintain an artificially inflated price through structure is a recipe for disaster.” The best-laid plansĭown rounds are no one’s preferred starting point. “As a young investor in the early 2000s, I ended up spending a lot of time restructuring cap tables” after the dot com bust, says Frederic Court, founder of the early-stage firm Felix Capital in London. He has also participated in deals where the company and its board agreed to bite the bullet and readjust the company’s valuation downward.īased on both experiences, he says his “strong belief” that “just doing a clean resetting - at whatever the valuation so that everybody is aligned and dealing with reality - is much, much better for a company.” Feld says that he has participated in financing rounds for startups so married to a particular number that they’ve agreed to anything to maintain it. And industry experts suggest the latter often makes more sense.īrad Feld, who has been a venture capitalist for more than 25 years, is among those who advocate for embracing the down round in cases where a company needs capital and hasn’t yet grown into a previously established valuation. Many companies are now facing a Hobson’s choice between trying to maintain the high-flying valuation they’ve established over the last year - no matter the contortions necessary to do it - or conducting a “down round,” a financing that results in a lower valuation. That’s a pretty breathtaking drop, and in the world of venture-backed startups, where everyone feels compelled at all times to be “killing it,” the price adjustment could be construed as a black mark against the company.

Very notably, when BlockFi last raised money from investors - $350 million in March of last year - the investors assigned the company a $3 billion valuation. Media outfits reported earlier this week that the crypto lending platform BlockFi is looking to raise roughly $100 million in fresh funding in a round that would value the company at about $1 billion.