Down rounds highest in a decade
What will Q4 bring? Is the worst is behind us or are there further challenges ahead?
Vincent Harrison, an Analyst with PitchBook, writes that 17 percent of all deals in Q3 of 2023 were down rounds, the highest percentage in a decade.
For those not familiar with the term, it is defined as a start-up offering additional equity in exchange for capital at a lower price than had been sold for in the previous financing round. It is not a good thing for building value in a company.
“The erosion of value creation between rounds continues to pose a significant challenge for start-ups and their investors, which not only limits return potential but also complicates fundraising for fund managers,” Harrison adds. “As we’ve long discussed, the ongoing turbulence within the venture landscape is particularly concerning for nontraditional investors, who were the first to retreat from VC (venture capital) as the economic landscape shifted last year.
He notes that many of these investors have continued to remain on the sidelines which is cause for concern, given the importance that their capital has meant to the VC ecosystem in recent years.
“As the year progresses, Q4 is poised to present challenges for founders, investors, and other VC participants. The question remains whether the worst is behind us or if there are further challenges ahead,” Harrison observes.
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