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

for the past year, everyone has been predicting that the muted exit environment and completely dry funding market would bring a reckoning for many late-stage companies.

We’ve been seeing layoffs and cost-cutting measures across the board as companies look to shore up their balance sheets. And now an increasing number of companies are raising money at lower valuations than their last investment. Unfortunately for startups, it looks like these negative rounds are here to stay.

Earlier this week, Alex Wilhelm dived in new first-quarter data from Carta, which showed that the number of negative rounds had nearly quadrupled in the first quarter of 2023 compared to the same period last year.

Negative rounds have a negative connotation and are often interpreted as the fault of the company or the founder. But in a market where everything seems to be going down, they shouldn’t imply that a company or its founders made a mistake; often, you just can’t help it. To the credit of venture capitalists, many investors have been vocal over the last year about how companies shouldn’t give in to this stigma.

This market cycle has yet to see a company move up a round before a successful exit, but startups contemplating that possibility should take heart as companies have cleared this hurdle in the past. Meta, known as Facebook at the time, is probably the best-known example. The social media company had raised a round to the downside in 2009 before going public in 2012 at a valuation of $104 billion.

But it can be hard for a B2B sales startup to earn the trust of Meta’s story: The social media company has always seemed to operate in its own world. But there’s a story of a company that’s easier to relate to: E Ink.

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