Silicon Valley And Start-Up Spook Are Over: Down Rounds Are The Expected New Reality

Silicon Valley And Start-Up Spook Are Over: Down Rounds Are The Expected New Reality


Photo by Andrea Piacquadio

In the financial chaos that followed the collapse of Silicon Valley Bank in March, many startups were caught up in the mess. 

There was a significant downturn in investor cash available to founders. Some venture-backed companies were expected to forced to raise new funding even if it means agreeing to a lower valuation than they once secured, a deal called a down round, Bloomberg reported. And down rounds are the expected new reality.

In a down round, a company sells shares at a price below its previous round’s valuation, according to PitchBook.

The easy money for start-ups dried up in 2022. This lead to slashed valuations. “But SVB’s collapse has stoked even more anxiety and dread, which is beginning to manifest in start-up dealmaking throughout Silicon Valley,” reported New York Times

“People are realizing it’s probably not going to get better,” Mathias Schilling, an investor at the venture capital firm Headline, told the outlet. “It was a big shock to the system.”

He said the bank run that led to SVB’s demise showed how much fear was already in the market. He said that investors wouldn’t have set off such a panic if they weren’t already on edge.

“We haven’t had a compression in values like this in more than 20 years. It’s an absolute bloodbath,” said Cameron Lester, global co-head of technology media and telecom investment banking at Jefferies, adding that companies that are able to raise money, even at a lower valuation, are the lucky ones. “What matters is you’re a survivor,” Lester said.

“We expect down rounds, especially toward the second half of this year, to really pick up,” said PitchBook analyst Kyle Stanford. The coming wave of lower valuations is “common knowledge,” Alfredo Silva, a partner at law firm Morrison & Foerster, told Bloomberg

Photo by Andrea Piacquadio: https://www.pexels.com/photo/serious-ethnic-young-woman-using-laptop-at-home-3768911/