ANALYSIS: As Down Rounds Loom, VC-Backed Companies Have Options

Venture-backed companies are feeling the negative knock-on effects of the uncertainty plaguing equity markets—which is expected to last well into 2023—on their own valuations. This impacts late-stage companies nearing initial public offerings, as well as their early- and mid-stage counterparts.

If a venture capital-backed company plans to raise capital in 2023, its managers are already likely considering alternatives to, and consequences of, issuing stock at a lower valuation than before, an act commonly known as a “down round.” To avoid the consequences of a down round, companies can offer enhanced rights to investors to justify propped-up share prices or extend ...