In a sluggish market, seeded rounds are a ‘ticket to try again’

For the past This year, everyone predicted that the muted exit environment and bone-dry financing market would bring a reckoning for many late-stage companies.

We’ve seen layoffs and cost-cutting measures across the board as companies look to strengthen their balance sheets. And now more and more companies are raising money at lower valuations than their last investment. Unfortunately for startups, it seems these downward rounds are here to stay.

Earlier this week, Alex Wilhelm dove into new Q1 data from Carta, which revealed that the number of downturns in the first quarter of 2023 had almost quadrupled compared to the same time last year.

Down rounds have a negative connotation and are often interpreted as the fault of the company or founder. But in a market where everything seems to be going downhill, they shouldn’t suggest that a company or its founders made a mistake – there’s often nothing you can do about it. To VCs’ credit, many investors have spoken out over the past year about how companies should not give in to this stigma.

“If you set a valuation of $700 million, it seems like you’re winning somehow and you’re not being diluted, but actually you’ve set the bar so high.” Russ Wilcox, Partner, Pillar VC

In this market cycle, no company has yet seen a down round prior to a successful exit, but startups considering that possibility should take heart because companies have overcome this hurdle in the past. Meta, known as Facebook at the time, is probably the most famous example. The social media company had been on a downward trajectory in 2009 before going public in 2012 with a valuation of $104 billion.

But it can be hard for a B2B sales startup to gain confidence in Meta’s story – the social media company always seemed to operate in its own world. But there’s one company story that might be easier to relate to: E Ink.

For the unfamiliar, E Ink was founded in 1997 in an MIT lab and is the company that invented electronic paper, the technology widely used for displays in e-book readers like the Kindle, digital signage, smartwatches, and electronic labels.