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VC Term Sheets (SMS)

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Unit 23 of 48
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Raising More Money


This page is the companion material to our SMS-based course “VC Term Sheets“. If you haven’t purchased this course yet, you are viewing it for free as a sample.

👉 Click here if you want to know more about this course. 


What with the valuation bubble of the last few years, it has become unfathomable to many VC participants — including fundraising Founders — that valuations go both ways. Up, but also down.

When a Company raises money at a lower (pre-money) valuation than the last round’s (post-money) valuation, the term “down round” is used.

We are going to cover anti-dilution clauses in the next few lessons. These clauses deal with the impact of down rounds on the Investors’ equity.

Let’s take a recent example. 

In October 2017, VC market research firm CBInsights posted a tweet showing that Hollywood actress Jessica Alba’s The Honest Company had lost its “unicorn” status.

Losing the horn?

After raising over $200 million in five rounds, The Honest Company raised a Series E Round at a reported valuation much lower than the previous Series D round.

In the hilarious HBO TV show Silicon Valley, angel investor Russ Hanneman complains about losing his access to the Billion-dollar Club — belonging instead to the Million-dollar one (“with an M, for million”.)

🗣 What do you think existing investors should do in a down round? How do you think Founders would react to it? Why do you believe down rounds happen in the first place?

Let us know in the Comments section below.

🔎 Sources and Additional Material

⏰ Reminder: The “anti-seniority” paragraph of the Protective Provisions clause


(iii) create or authorize the creation of or issue any other security convertible into or exercisable for any equity security, having rights, preferences or privileges senior to or on parity with the Series A Preferred, or increase the authorized number of shares of Series A Preferred.


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