Dear SaaStr: What Happens When You Can’t Meet The Expectations From the Valuation of Your VC Financing?

It varies e based on the situation.

  • If it was a small round done with SAFEs or promissory notes, the price usually adjusts to a 20% or so discount to the next round, if there is one. So the issue is solved there, in a sense.
  • If it was a bigger round, but you can still close a “round extension” at the last round price, in the end, everyone will OK with it. They may complain a bit, but in the end, everyone is OK with round extensions at the same price, even years later.
  • If the company is later sold at a lower price than the last round, you may have to adjust the last round price. They may not agree to the acquisition otherwise.
  • In the end, what matters most is the “3x Rule” — that you sell for at least 3x the price of the last round.  If you do in the end, it works out.

Look at the end of the day, professional investors know not every startup works out, and not every round is a huge up-round. They get it.  Unless — they’ve invested a lot 🙂 

The more money that goes in, the bigger the stakes, the bigger the drama here.

If you’ve done everything you can, and you don’t run out of money, and sell for at least more than the last round price — it will work out, one way or another.

If you’ve raised a ton, if you’re a struggling unicorn with no path to profitability and no growth — then it’s a total mess.

A related post here:

The $100,000,000 Valuation: The Last Stop Before “IPO or Bust”

(overpriced image from here)

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