Survival Mode and Preparing for a Potential Down Round



Venture capitalists (VCs), like crypto retail traders, essentially invest based on gut instinct. Down rounds are when a company raises capital at a lower valuation. It means that the stock price paid in previous investing rounds has declined. Sometimes this process is called “momentum,” as in a growing company or an appreciating coin is sure to do well if it has been doing well.

Investing clearly has a psychological component. “In Silicon Valley venture financing, a ‘down round’ is to be avoided at all costs,” the Wall Street Journal has boldly proclaimed.

Startups worry that the damage of down round is far-reaching for recruiting efforts, existing employee morale, customers and partners.

See: What to Know About Borrowing Against Crypto

Yesterday, Frank Chaparro at The Block reported that crypto lender BlockFi is set to raise an undisclosed amount of money at a $1 billion valuation, down from its previous round when it was valued at $3 billion.

This is the largest profile down round to have occurred since the beginning of the crypto market’s downcycle. It speaks to the bearish mood, imminent monetary tightening and a likely pull back in venture capital financing that has acted as an accelerant for token markets.

Chaparro called it “a striking development” considering the “high degree of venture capital activity only months before.”

In BlockFi’s case, it might also speak to the regulatory uncertainty around its core business after paying a $100 million penalty to several securities regulators regarding a high-yield lending product.

See: a16z Releases 2022 State of Crypto Report: 5 Key Takeaways

Yet, BlockFi is still a unicorn, or a private company with a $1 billion valuation. At the beginning of the year, there were more than 900 such companies – a smattering of them in crypto – compared to 80 total in 2015, according to CBInsights.

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