4 ms·
I agree, I think this is an inefficiency. But it's a tough one to correct because startups are a repeated game, and everyone's worried about upsetting people th
by lpolovets 4y ago
I agree, I think this is an inefficiency. But it's a tough one to correct because startups are a repeated game, and everyone's worried about upsetting people they'll have to keep playing with.
I think the logic is "I like this company, but if I offer a down round then will I piss off their existing investors? Will those investors stop sharing good investment opportunities with me? ... Ah screw it, I'll just skip this down round and focus on other prospective investments."
I think multi-stage investors are probably best-positioned to address this, since they are both new and existing investors in the companies they back, so they should be able to offer market price down rounds for companies that are still promising but unable to attract external capital.
- singron 4y agoDown rounds are bad for employee morale too since it puts previously issued options below water. It's probably worth it to re-issue equity, but that's messy and a lot of companies don't do it.
- icedchai 4y agoAt a previous company all of the employees (there weren't many left) demanded options be repriced. They were. Unfortunately, they still were worthless when the company was "acquired" in a fire sale.
- bombcar 4y agoWhich is why nobody likes down rounds, as it's indicative of where everything is going (and so the music stops).
- icedchai 4y agoYep. But when your startup is burning through cash and you're not going to make next month's payroll, you're pretty much force to accept whatever terms you're offered. (Assuming you're offered any.)