Jun 16, 2022 - Economy

The upside of unicorn down-rounds

Illustration of a unicorn in a raft

Illustration: Aïda Amer/Axios

This is the moment for certain VC-backed "unicorns" to consider down-rounds. Not only because conditions may suggest them, but because they come with relatively little reputational damage.

Be smart: If everyone raises a down-round, does anyone raise their eyebrows?

Three things we know:

  1. Many VC-backed companies are worried their runways are too short.
  2. Many of those same companies once made a very big deal about their nosebleed valuations, even putting them in press release headlines and referring to themselves as unicorns.
  3. Venture capital and growth equity funds are flush with cash, but under limited partner pressure to be more conservative.

Context: Remember the early pandemic days, when sectors like hospitality were staring at the gravestones? And companies like Airbnb raised new capital, often highly structured, at much lower valuations? No one held it against Airbnb, of course, and it later went public and now sports a $65 billion market cap.

  • June 2022 is much different than March 2020, but some of the same principles apply. Survival is paramount.
  • And if that means taking a down-round, so be it. Even if it's accompanied by a bit of founder dilution, new stock option grants or seeing your VC backers crack a smug smile.

Piece of advice: Don't try to hide down-rounds from the media, and then get backed into an admission because of a leak. And that goes double for telling employees.

  • There's strength in making a hard decision, even if it highlights past hubris. Own it and live to fight another day.
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