VCs hammer entrepreneurs: dreaded “down rounds” surge by Matt Marshall
Venture capitalists have tightened the screws on entrepreneurs, scooping up much larger chunks of ownership of companies in return for investments.
During the second quarter of the year, VCs pushed company values down 46 percent of the time when they invested, when those values are compared to the value of the company’s previous round. That valuation is used to determine how many shares VCs get from the company in return for their money. The lower the value, the more ownership VCs get, and the less is left for entrepreneurs. The “value” is negotiated between the VCs and entrepreneurs at the time of the deal.