December’s Down Rounds Could Be A Harbinger

There has been a lot of talk about down rounds and dropping valuations for startups since about the second quarter of this year, but examples of such picked up this week as startups looked to add cash before the end of the year at slashed prices.

Three well-known unicorns all announced deals this week that sliced into their valuation and dropped investors’ portfolio values.

• Boston-based cybersecurity startup Snyk raised a $196.5 million Series G at a $7.4 billion valuation. That’s a 13% drop from September 2021, when the company — which  has now raised about $1 billion — closed a $530 million Series F at a $8.5 billion valuation.
• New York-based Dataiku, an AI/ML platform developer for enterprises, closed a $200 million Series F at a $3.7 billion valuation. That represents a 20% drop from August 2021, when the startup raised a $400 million Series E at a $4.6 billion valuation.
• London-based payment startup Checkout.com reportedly cut its internal valuation to approximately $11 billion last month, the Financial Times reported. The company previously was valued at $40 billion in January, when it raised a $1 billion Series D. That’s a whopping 73% drop in value. Checkout.com has raised about $1.8 billion — its backers include Tiger Global Management and GIC — according to Crunchbase.

Another large round reported this week — health data startup Komodo Health raising a “structured equity infusion” of $200 million led by Coatue Management — also came with some bad news. The company announced it would be restructuring — laying off 9% of its workforce — and its CFO would be leaving for personal reasons at the end of the year, it was reported.

In March 2021, Komodo had raised $220 million led by Tiger.

What it means

One of the things all these companies have in common is they raised large rounds in the salad days of 2021. Investors have said time and time again this year that companies may be able to avoid down rounds — which can cause board tension and lessen employee morale — because of the large amount of cash they raised last year when times were good and had extended their runway for years.

However, these are just some examples of companies this week alone that apparently saw a need to raise money less than 2 years after raising large rounds at larger valuations.

No doubt some of these companies likely thought their next round of financing would be an IPO. For example, it was reported in March that Komodo was eyeing a summer listing.  However, with the IPO pipeline line frozen — and perhaps no Plan B — a down round was the next best, and maybe only, option.

Of course, not all the news was bad on the funding scene. Elon Musk’s SpaceX is selling employee and investor shares via a tender offer which will value the company at $140 billion, Bloomberg reported. It was valued at $125 billion in a funding round earlier this year.

But not all companies are SpaceX, and seeing companies that raised big just in 2021 already accepting down rounds could foreshadow a scary 2023.

Illustration: Dom Guzman

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