We need to destigmatize down rounds in 2023

Market conditions are uncertain and uncomfortable with a new year approaching. It's equally difficult to accompany those conditions. It may be necessary for startup founders to rethink how they measure success.

Many people who founded a company in the past decade will be new to the business climate in the future. A seemingly endless stream of cheap capital has been used to dispose of any startup deemed to have high growth potential. Everyone wanted a piece of the future. The risks were relatively low with interest rates near zero.

When you ran out of money, you just raised more money. Is debt something you have? Who doesn't need it? Even if their share in the company wasn't as high as they wanted, they were still happy to play along.

This pattern of rapidly rising valuations and a pie growing fast enough to compensate for any dilution became a mythology at the core of startup culture. It was a culture that many people fed into.

It sent a signal to potential employees and the markets that a company had a lot of steam. When it was time to raise more capital, high valuations became one of the first things investors looked at.

The funding route you take has enormous consequences for the future of your company; it shouldn’t be clouded by ego or driven by media appetites.

We will see reality checking in when it comes to funding this year due to tough economic conditions. The tap will run slowly amid rising interest rates and a negative macroeconomic outlook. With equity financing no longer cheap and plentiful, there will be a sense of anxiety among founders. They can't burn cash without thinking about where they'll get more when it's gone

When that time comes, there will be a choice to be made. Are they going to use convertible notes or are they going to approach new investors? Tech stocks have been hammered in the past year, which could mean that their company's value has fallen since the last time they raised capital.

Down rounds seem to be out of the question for a lot of startup founders. They would have to contend with the negative side of the media mania, which could erode employee and investor confidence. There is a fear that taking a down round would make them pariahs in the Silicon Valley.

Down rounds don’t spell the end of your business

There are no one-size-fits-all solutions. It shouldn't be clouded by ego or driven by media appetites because the funding route has enormous consequences for the future of your company.