by Alex Lazarow, Managing Partner at Fluent Ventures

This piece was originally published on Alex Lazarow's newsletter, [99%tech]

It’s not wrong to down-round.

In tech, there is often a feeling of a momentous march, a prolonged path forward, punctuated by fundraising milestones—we call them Seed, Series A, Series B and so on.

But the last few years brought us an aberration of capital and valuation. We are in a correction today.

In that vein, I loved this piece arguing there is no shame in down rounds.

“Imagine you’re the founder of a successful tech startup. You’ve achieved product-market fit and raised a financing round in 2021 at a record valuation. There were even articles written about your company in TechCrunch! Since then, revenue has doubled and you’re now looking to raise another round. Unfortunately, the venture capital landscape has changed, and despite its growth, your company is worth less today than it was two years ago. What do you do? …Raising a down round is taboo in the venture capital world, forcing founders and early investors to confront a number of tough questions and feelings. It shouldn’t be so scary. Much like in the public markets, there are a number of reasons why private companies may go up and down in value. When valuations get too inflated, down rounds pull the market back to earth. We don’t have to love them, but we shouldn’t fear them.”

In my view, the important lesson is that fundraising events aren’t and shouldn’t be treated as the milestones along the way. Financing is a tool, and valuation part of the cost of accessing that tool. The milestones should be operational and impact metrics—revenue, customers, gross margins, retention… and dare I say profit. #Camels