Bridge rounds and down rounds are becoming common topics in startup boardrooms. Whether you’re a founder, investor, or part of the management team, understanding how often these rounds occur and what they mean is critical. This post doesn’t just throw numbers at you. Each stat you see here tells a story — a story of shifting investor sentiment, evolving market realities, and how startups are coping.
1. In Q1 2023, 20% of all venture deals in the U.S. were down rounds.
What This Means for Founders and Investors
This stat is more than a number. It’s a reflection of the cooling investor climate that kicked in during the later part of 2022 and continued into 2023. A down round happens when a startup raises funding at a lower valuation than in a previous round.
That’s painful for everyone—founders, employees with equity, and even early investors who see their stakes get diluted or lose value.
When one in five venture deals are down rounds, it suggests that startups are facing real pressure. It shows that investors are much more cautious.
They want to see stronger financials, real traction, and sustainable growth models before they open their checkbooks.
What You Should Do If You’re a Founder
If you’re thinking about raising capital in the next 12 months, this stat should encourage you to prepare well in advance.
Revisit your growth metrics. Nail down your unit economics. Be brutally honest about burn rate and runway. These are not just vanity numbers anymore—they’re make-or-break elements.
If you suspect your valuation will go down, start prepping your team. Manage expectations around equity dilution. Reframe the narrative internally so your team doesn’t lose morale. Make sure everyone knows this isn’t failure—it’s survival and repositioning.
What Investors Should Think About
Investors need to reevaluate their playbook too. Down rounds can be opportunities to double down on good companies at better terms. But they also require stronger oversight. You’re investing in a company that missed the mark once—what’s changed now?
Due diligence should dig deeper. Understand how the leadership is adjusting, how the product is evolving, and whether the market conditions that hurt them are temporary or structural.
2. Bridge rounds made up 27% of seed-stage financing activity in 2022.
Why This Is a Red Flag for Early-Stage Startups
Bridge rounds are meant to be short-term solutions. When they start making up over a quarter of seed-stage activity, it’s a warning. Startups are having a harder time raising priced rounds like Series A, and instead are turning to insiders for lifelines.
This trend shows that investor confidence in seed-stage startups has dropped. Bridge rounds are often raised on convertible notes or SAFEs, and they usually come with fewer terms. That makes them quicker to close—but it also means startups are buying time, not stability.
Founders: Prepare for Tougher Conversations
If you raised a seed round and expected to cruise into Series A, this stat should give you pause. Investors aren’t just throwing cash at big ideas anymore. They want proof.
So if you’re thinking about a bridge round, frame it clearly. It’s not a “mini raise.” It’s a crucial tool to either get your metrics up or pivot effectively. Be upfront with existing investors. Show them what this capital will accomplish in the short term.
Will it extend your runway? Help you hit product-market fit? Improve retention? Make that clear.
Also, don’t treat the bridge like a cushion. Use it to hit meaningful milestones, not just to stay afloat.
Investors: Use Bridge Rounds to Influence Outcomes
If you’re an investor backing a bridge round, this is your moment to add value beyond cash. Don’t just write a check—offer strategic help. Push for product reviews, operational discipline, and marketing clarity.
At the same time, be realistic. Not every startup will make it to the next round, even with your support. So structure the bridge thoughtfully. Consider valuation caps, discounts, or even performance milestones tied to funding.
3. Series B companies were most affected by down rounds, with 31% experiencing one in 2023.
The Pressure Cooker of Mid-Stage Growth
Series B is where things get real. By this stage, startups are expected to prove that they can scale. It’s no longer about ideas—it’s about execution. And in 2023, nearly one-third of companies at this stage saw their valuations drop in new rounds.
That means either their growth slowed, their burn was too high, or the market they were targeting didn’t perform as expected.
It’s also a sign that the bar for Series B has moved higher. Investors want to see sustainable revenue, strong customer retention, and clear paths to profitability.
What Founders Should Focus on Now
If you’re approaching a Series B round, this is a wake-up call. Investors are scrutinizing every metric. CAC, LTV, retention rate, payback period—these are no longer optional slide-deck metrics. They must be solid, real, and improving.
You also need to rethink your storytelling. Investors are hearing a lot of noise, so clarity is everything. If you’re facing a down round, be honest in your pitch. Reframe it: you’ve adjusted your model, learned from mistakes, and now you’re ready to scale on more realistic terms.
Be proactive about the terms too. Push for clean structures. Avoid aggressive liquidation preferences or ratchets that can come back to hurt you in the next round.
Advice for Series B Investors
If you’re deploying capital into Series B companies, caution is good, but paralysis isn’t. Down rounds can give you leverage, but they can also sow internal tension.
Look at how leadership has adapted. Did they cut burn? Did they focus on the right priorities? Use the down round as a lens to assess founder resilience, not just financials.
It’s also worth checking if earlier rounds were overhyped. Many Series B startups raised at inflated valuations in 2021. A down round now could simply be a correction—nothing more.
4. Median valuation drop in down rounds during 2023 was 42%
A Hard Reset on Startup Expectations
Imagine building your company for years, only to raise your next round at a value 42% lower than before.
That’s the harsh reality many startups faced in 2023. This figure isn’t just a small haircut. It’s a major reset. And it hit especially hard for startups that raised during the 2021 peak when investor optimism was sky-high.
Valuation isn’t just a number on a pitch deck. It sets expectations for employees, customers, and future investors. A drop of this size sends ripples across all of them. Team morale can take a hit. Founders may feel like they’ve lost credibility.
Early investors may start to panic. But if handled right, a down round—even a deep one—can be a turning point rather than a death sentence.
What Should Founders Do?
First, detach your ego from your valuation. Yes, it stings. But the startup world isn’t about status—it’s about survival. Your job is to secure capital, keep the company alive, and move toward profitability.
Start by reframing the narrative. You’re not raising at a lower valuation because your company failed. You’re recalibrating. Your new valuation is likely more in line with the real value you can deliver in today’s market.
Second, manage dilution proactively. Talk to your cap table advisors. Consider extending your option pool or offering retention grants to keep your team motivated. That might feel like giving up more equity, but if it keeps your top people around, it’s worth it.
Finally, communicate clearly. Whether it’s your team, your investors, or even your customers, transparency goes a long way. Share what you’ve learned, how you’re adjusting, and what the plan is going forward.
Advice for Investors
As an investor, a 42% valuation drop can feel like a red flag. But context matters. Ask yourself: was the original valuation unrealistic to begin with? Did the company miss projections, or did the market shift under their feet?
Instead of focusing on the drop, focus on what’s being done about it. Is the company tightening operations? Are they getting more efficient with capital? If they’re learning and adapting, this could be your chance to invest on better terms—especially if you believe in the long-term vision.
You can also use the down round as a moment to reset governance. Tighten board controls, adjust vesting schedules, or restructure debt. But do it collaboratively. If founders feel cornered, they may check out emotionally—and that’s when companies really fail.
5. 60% of bridge rounds in 2022 included convertible notes
A Popular but Imperfect Tool
Convertible notes are one of the most widely used tools in bridge rounds. In 2022, 60% of bridge financing included these instruments. They’re fast, flexible, and often founder-friendly in the short term. But they’re not without their risks.
A convertible note is essentially a loan that converts into equity at a future round. Usually, it comes with a discount or valuation cap. For founders, it’s a way to raise cash quickly without setting a new valuation. For investors, it’s a bet on future success at a better price.
So why did so many startups turn to them in 2022? The main reason: speed. When runway is short and you need cash fast, convertible notes are simpler to negotiate than priced equity rounds.
How Founders Can Use Convertible Notes Wisely
Just because convertible notes are easy doesn’t mean they’re harmless. Before you sign one, think long-term.
Start by calculating the total dilution they could trigger. Stack multiple notes and SAFEs together, and you might end up giving away more equity than you expect—especially if your next round comes at a lower valuation than you hoped.
Next, be clear on terms. Valuation caps and discounts sound simple but can become complex when layered together. Don’t leave room for confusion. Work with a startup lawyer who can model different funding scenarios.
Also, set a clear plan. A bridge round should be just that—a bridge. Define the goalposts: whether it’s hitting $100K in MRR, launching a product update, or closing a key partnership. Make sure your team knows what success looks like during this window.
What Investors Should Watch Out For
If you’re writing a convertible note, think about what you’re actually getting. You’re not buying equity—you’re buying a promise of equity later. So your protection lies in the terms.
Push for clear valuation caps. Ensure that your discount is competitive. And if you sense that the company might struggle to raise a priced round in the near term, consider structuring the note with milestones or even partial repayment options.
Also, avoid piling on convertible notes without clarity. If a startup already has multiple notes outstanding, it might be hard to track your position later. In messy cap tables, everyone loses—especially during an exit.
Bottom line: convertible notes are useful. But only when handled with care, transparency, and a clear path forward.
6. The number of bridge rounds doubled from 2021 to 2023
A Sign of Caution, Not Confidence
When the number of bridge rounds doubles in just two years, it’s a signal. Startups are not raising follow-on rounds at the pace they used to. Instead, they’re patching runway gaps with interim funding.
This trend accelerated between 2021 and 2023 as market uncertainty grew and investors pulled back from large commitments.
Bridge rounds are meant to extend runway just long enough to hit key goals and then raise a priced round.
But when they become the norm, it signals something deeper. It might mean startups aren’t hitting metrics fast enough, or that valuations are too high to attract new investors.
What Founders Need to Rethink
If you’re considering a bridge round, ask yourself: what changed since your last round? Did your market slow down? Did your sales pipeline dry up? Did your CAC increase?
Whatever the answer, don’t raise a bridge round just because others are doing it. Instead, define its purpose clearly. What exact milestone will this money help you reach? Maybe it’s shipping a delayed product, launching a new GTM strategy, or closing a major enterprise client. Be specific.
Also, consider the long-term impact. Each bridge round you take adds complexity to your cap table. It changes investor dynamics. It also tells future investors that you needed help—not necessarily a deal-breaker, but something that needs a good story.
And most of all, don’t rely on the bridge as your only plan. Start exploring partnerships, cost-cutting, and non-dilutive funding. The best founders aren’t just good at raising money—they’re good at stretching it.
Investor Insights on the Surge
Investors should treat the rise in bridge rounds as a moment of opportunity and caution. On one hand, this is your chance to support existing winners through a tough patch. On the other, it’s easy to overextend if you’re not looking carefully at fundamentals.
Always assess whether the company is progressing or simply treading water. Are they closer to PMF? Are sales cycles shortening? Are churn numbers improving? These are the signs of forward motion.
If the startup has stagnated, a bridge round may just delay the inevitable. But if they’re learning and iterating fast, your bridge funding might turn into one of your highest ROI investments.
7. Over 45% of Series A startups in 2023 raised at least one bridge round before Series B
The Middle Ground Is Getting Tougher
The journey from Series A to Series B used to be straightforward. Hit some metrics, grow the team, show traction, and investors would line up. But in 2023, that path became bumpy. Nearly half of Series A startups had to rely on a bridge round before they could lock in Series B.
This isn’t just about bad luck or isolated failures. It’s a trend that shows the entire fundraising landscape is shifting. Investors are slower to commit. They expect more proof points. And startups are being forced to buy time—with bridge rounds—to meet those higher expectations.
What Founders Should Learn from This
First, this stat means you’re not alone. If you’re raising a bridge between A and B, don’t view it as a failure. It’s becoming a normal part of the process. But that doesn’t mean you can treat it casually.
You must be razor-sharp about how this bridge helps you grow. Investors will want to see that you’ve learned from your Series A period. They’ll ask: What changed? What did you fix? What traction have you gained?
So prepare your story. Show how you’re turning user feedback into product improvements. Show how you’re tightening CAC. Show how you’re learning, adapting, and becoming more efficient.
You should also watch your metrics closely. In this stage, the difference between getting Series B and needing another bridge often comes down to consistent growth. Even modest, steady growth is better than wild swings.
And finally, build trust. Bridge rounds often come from existing investors. They’ve already taken a risk on you. Keep communication open, updates frequent, and always explain the why behind the ask.
Advice for Series A Investors
If your portfolio company needs a bridge before Series B, don’t panic. Step back and assess. Are they making progress? Are users sticking around? Is churn going down? If the fundamentals are improving—even slowly—then this bridge could be the key to unlocking a successful Series B.
However, avoid throwing good money after bad. If the company hasn’t adjusted or still lacks focus, a bridge round may just be a delay tactic.
Structure your bridge round wisely. Consider adding governance checkpoints or tying releases of capital to milestones. You’re not just funding the company—you’re funding accountability.
8. Among startups that raised bridge rounds, 36% failed to raise another priced round within 18 months
When a Bridge Becomes a Dead End
This stat is a sobering one. More than a third of startups that took a bridge round couldn’t raise a proper priced round in the next year and a half. That’s a long time in startup land. And often, it signals the beginning of the end.
A bridge round is supposed to get you to a clear next step—a product launch, revenue milestone, or Series A/B. But when that doesn’t happen, the bridge becomes a cul-de-sac. You’re stuck, with no clear path forward.
What This Means for Founders
If you’re heading into a bridge round, treat this stat as a loud warning bell. The bridge is not the goal—it’s the lifeline. You must enter it with a very specific strategy.
Don’t use bridge money to extend the status quo. Use it to change the game. What is the one key achievement that will unlock investor confidence again? Focus every dollar on that.
And track time carefully. Eighteen months may feel far off, but the clock starts ticking the day you close. You need real, visible progress within the first six months.
Also, be careful with your internal team. If employees sense uncertainty or delay after delay, morale can crash. Set expectations clearly. Explain why the bridge is necessary, what it’s funding, and how it fits into the bigger vision.
Finally, don’t wait until you’re down to two months of runway to start preparing your next raise. Start soft-circling new investors as soon as you have early signs of progress. Momentum is your best friend in fundraising.
Investor Takeaways
If you’re putting money into a bridge round, know your risk. There’s a high chance that a follow-up round may never materialize. That doesn’t mean you shouldn’t do it—but you need to go in eyes open.
Push the company for specifics. What will this money achieve? What are the measurable outcomes they’re committing to? Also, have frank conversations about what happens if the next round doesn’t come. Are they open to acquisition? Would they wind down cleanly?
This is also a time to reassess leadership. If a company has burned through several rounds and still can’t raise more, it might be a sign that the market has spoken. Consider if new leadership or a strategic pivot is needed.
Bridge rounds are tools—not miracles. Use them well, or they become liabilities.
9. In 2023, only 12% of down rounds were followed by an up round within one year
The Climb Back Up Is Harder Than It Looks
It’s a tough pill to swallow, but the numbers are clear: just 12% of startups that raised a down round in 2023 managed to raise an up round within the next year. In other words, the road to recovery is steeper than most founders think.
A down round often comes with emotional and strategic baggage. Morale drops. Valuations shrink. Teams worry about equity dilution. And outside investors wonder if the company still has momentum.
The result? Even if a company improves, it can take time—more time than expected—for the market to notice and believe again.
What Founders Can Take Away
If you’ve raised a down round, your next 12 months need to be laser-focused. You have one job: to rebuild confidence. Internally, that means keeping your team motivated, product roadmap tight, and customer relationships strong. Externally, it means keeping investors updated and showcasing clear wins—even if they’re small.
Avoid the trap of thinking one major client or one press release will turn the tide. What matters is steady, consistent improvement. Increase retention. Improve gross margins. Reduce churn. These fundamentals speak louder than hype.
Also, don’t set your sights on a flashy up round right away. Instead, aim for a clean, fair raise that reflects actual growth. Prove you’re worth more—not just by saying it, but by showing it.
And prepare for tougher terms. Even if you bounce back, investors will want protection. Expect more structure—liquidation preferences, board controls, or milestone-based tranches.
Guidance for Investors
For investors who participated in a down round, patience is key. You may not see a quick turnaround. The best approach is to stay engaged, offer support, and focus on helping the company rebuild trust in the market.
If you’re considering joining a company after a down round, dig deeper. What’s changed since the reset? Has the leadership evolved? Are KPIs trending in the right direction? If yes, you might get in at a low valuation just before an inflection point.
And don’t underestimate the power of signaling. If you believe in the company, say it publicly. Lead the next round. Help the market regain trust. That credibility can make all the difference in a world where perception often drives reality.
10. The global percentage of down rounds rose to 22% in late 2023 from just 6% in 2021
A Global Shift in Investor Sentiment
This sharp rise—from just 6% in 2021 to 22% in late 2023—is more than a statistical trend. It’s a global reset in how the startup world values growth, risk, and momentum. The euphoria of 2021, with sky-high valuations and massive venture checks, has been replaced by a new era of caution.
Investors are no longer willing to bet on potential alone. They’re demanding proof—real traction, improving margins, and clear paths to profitability. For founders, this stat is a sign that the bar is higher now, no matter where you operate.
Founders: Understand the New Rules of the Game
If you raised in 2021 and are now going out again, you’re likely facing a much tougher audience. That doesn’t mean your company isn’t good—it just means the market has changed.
Start by acknowledging the shift. Don’t pretend you’re still in 2021. Be upfront about where the market is and what you’re doing to meet the new expectations.
Next, rethink your valuation goals. If your last round was at a lofty multiple, consider resetting expectations. Investors are wary of companies clinging to inflated valuations—it’s often seen as a red flag for inflexibility.
It’s also wise to cut unnecessary spend. In this climate, every dollar counts. Investors want to see lean teams, efficient operations, and creative growth hacks.
Most importantly, don’t take the rise in down rounds personally. It’s a systemic shift, not a reflection of your worth as a founder. Stay calm, stay clear, and focus on executing your strategy.
What Global Investors Should Be Watching
As an investor, this rise in down rounds across the world suggests it’s time to revisit portfolio strategy. Are you overexposed to sectors that peaked in 2021? Are you backing companies still priced at pandemic-era multiples?
Now is a good time to double down on fundamentals. Look for startups that are adjusting to this new reality. Are they cutting burn? Have they repositioned their offering? Are they focusing on core users?
It’s also a chance to invest at more reasonable prices. A down round can be a healthy correction—an opportunity to enter strong companies at valuations that actually make sense.
But tread carefully. Don’t just invest because it’s cheap. Make sure the startup has a clear story for recovery—and that the leadership has what it takes to execute.
11. 75% of down rounds in 2023 involved flat or declining revenue growth
Revenue Tells the Real Story
If three out of four down rounds are happening in companies with flat or falling revenue, the message is clear: growth is everything. Investors aren’t just looking at potential anymore. They’re scanning revenue trends, and they want to see upward motion.
In many ways, this stat simplifies things. You don’t need to be perfect. You just need to be growing—consistently. When revenue stalls or drops, confidence drops too. And that’s when valuations fall.
Founders: Prioritize Growth Over Perfection
If you’re worried about a down round, ask yourself one question: is your revenue growing month over month?
If not, that’s where you need to focus. Forget vanity metrics. Forget brand awareness. Forget that one big press feature. If it’s not moving the revenue needle, it won’t save your valuation.
To restart growth, first look at your customers. What’s driving churn? Where are you losing deals? What do your best users love most? Double down on that.
Next, simplify your product roadmap. Focus on features that support revenue. Cut anything that doesn’t move users closer to conversion or expansion.
Also, experiment with pricing. Sometimes, a small change in pricing tiers or packaging can unlock new segments. Talk to your sales team. They often have insights that get lost in dashboards.
And remember—investors will forgive small mistakes if revenue is heading in the right direction. But if your revenue is shrinking, you need a clear plan to reverse that trend—and fast.
Investor Perspective: Revenue Trends as a Litmus Test
If you’re evaluating a startup for a potential investment and you see flat or declining revenue, stop and dig deeper. Is this a seasonal dip or a long-term issue? Are they losing customers or just facing longer sales cycles?
Look beyond the total number. Break it down by customer cohort, churn, upsell rate, and new bookings. One-off slowdowns are manageable. Systemic declines are not.
Also, assess how the founders are responding. Are they panicking, or are they pivoting smartly? Do they understand the root cause of the slowdown? That’s often the best predictor of whether a company can bounce back.
Down rounds tied to poor revenue trends can still be smart investments—if the problem is solvable and the team is proactive.
12. 30% of bridge rounds in 2023 were structured as SAFEs with valuation caps
Simplicity Is Good, But Only When You Plan Ahead
SAFEs (Simple Agreements for Future Equity) have become a go-to instrument for founders. And when combined with valuation caps, they offer just enough structure to satisfy both sides. In 2023, 30% of bridge rounds used this exact setup.
That tells us two things. First, founders want speed and simplicity. Second, investors want protection. A valuation cap offers a ceiling—it says, “We’ll convert our money into equity later, but not above this price.”
This hybrid approach is flexible, but it’s not free of pitfalls. Used incorrectly, SAFEs with caps can create confusion, misaligned expectations, and messy cap tables.
Founders: Structure Your SAFEs Smartly
If you’re offering a SAFE with a cap, think carefully about what that cap signals. Set it too high, and investors might walk. Set it too low, and you could give away more equity than you intended.
A good rule of thumb: the cap should reflect a realistic next-round valuation—maybe with a 10–20% buffer. Don’t anchor it to your dream scenario. Anchor it to your most likely one.
Also, communicate clearly. Investors need to understand exactly how their money will convert. Will it come with a discount? Will there be a trigger event? Clarity now prevents legal headaches later.
And if you’re stacking multiple SAFEs, get a lawyer to help model the dilution impact. Many founders are shocked later when they realize how much equity they’ve given away without even realizing it.
Finally, don’t forget the emotional side. SAFEs may be “simple,” but investors still want to feel like partners. Keep them updated. Share wins and losses. That builds trust—and trust is currency.
What Investors Should Consider
If you’re investing via a SAFE with a cap, don’t treat it like a passive bet. Ask yourself: do you believe this company will raise a priced round within the next 12–18 months?
If yes, great. The SAFE gives you a solid position without negotiation hassle. If not, be careful. You could be stuck in limbo—owning nothing, influencing nothing, and unable to exit.
Also, check the cap carefully. Does it make sense given the stage, metrics, and market conditions? If it feels inflated, ask for a revision or pair it with a discount clause.
And most importantly, stay engaged. The best SAFE investments happen when investors act more like mentors than bankers. Offer help. Share intros. That’s how you turn a bridge into a launchpad.
13. Down rounds in fintech rose by 80% between 2021 and 2023
Fintech’s Shiny Armor Took a Hit
Fintech had its golden age. Between 2019 and 2021, the space attracted massive interest and sky-high valuations. Embedded finance, neobanks, lending platforms, and crypto-based finance apps were everywhere. But then, the music slowed down.
From 2021 to 2023, down rounds in fintech surged by 80%. That’s not a slight adjustment—it’s a freefall.
Why? For starters, many fintech startups scaled too fast. They raised huge rounds with the assumption that user growth and market expansion would continue forever. But regulatory tightening, consumer fatigue, and credit tightening all started to bite. Investors grew cautious.
Suddenly, revenue models were under scrutiny, especially in lending and payments.
Founders in Fintech: How to Adapt Quickly
If you’re building in fintech, this stat means one thing: you’re under a microscope. Investors want to know if your business model can thrive in a tighter economic environment.
If you’re in lending, show that your underwriting is solid and your defaults are manageable. If you’re a payments company, prove you can grow margins—not just users. And if you’re building crypto tools, transparency is everything.
It’s time to go back to basics. Look at unit economics. Are you making a little money on each transaction, or bleeding cash? Show investors that you’re not just growing—but growing responsibly.
Also, don’t overpromise. The fintech market is full of competitors who talk big. What stands out now is execution, not hype. If you’ve had to make tough decisions, share them openly. Show how you’re pivoting or tightening strategy in response to changing conditions.
Most importantly, take control of your fundraising narrative. If you’re forced into a down round, position it as a market correction, not a personal failure. Show how your company is still solving real problems—just at a more rational valuation.
Investors: Look for Grit, Not Glamour
As an investor, an 80% increase in fintech down rounds is a signal to sharpen your filters. High burn, flashy decks, and big TAMs are no longer enough.
Look for teams that are calm under pressure. Are they managing risk effectively? Are they transparent about their numbers? Do they understand the regulatory landscape? These are the founders who’ll survive the correction and thrive later.
Down rounds in fintech may feel risky, but they can also be reset moments. If a company is solving a deep pain and adjusting well, you might get a bargain on a future winner.
14. Median dilution in down rounds for founders was 22% in 2023
Giving Up Equity Hurts—But Sometimes It’s Necessary
A 22% dilution means founders are giving up a significant chunk of their ownership in one go. That’s not pocket change—it’s a real impact on future wealth, voting rights, and morale. And it’s happening more often as valuations fall and investors demand more protection.
For many founders, this can feel like a betrayal of everything they’ve built. But here’s the truth: sometimes, giving up equity is the price of staying alive. The real question is whether that dilution is buying you time to grow—or just prolonging the inevitable.
Founders: Make Every Percent Count
If you’re heading into a down round, don’t just accept dilution as a given. Negotiate actively. Can you trade valuation for fewer board seats? Can you protect employee options? Can you keep certain terms clean even if the price per share is low?
Next, communicate with your team. They’ll hear rumors, and if you don’t explain the equity impact, trust will erode. Be transparent. If their options are underwater, offer new grants or revise the option pool. Your team needs to believe the upside is still there.
Also, revisit your long-term plan. If you’ve diluted heavily now, how much equity will be left at exit? If the numbers don’t work out, you might need to rethink your exit timeline, raise less next time, or explore M&A sooner.
And don’t ignore the psychological impact. It’s natural to feel like you’ve lost control. But remember—many of today’s most successful founders went through painful rounds early on. What matters is how you bounce back, not how low you dip.
Investors: Balance Protection With Partnership
Investors asking for a large slice of the pie need to be aware of the trade-offs. Yes, more equity means more potential return—but not if the team loses motivation.
Be thoughtful in structuring the round. Can you set up a performance-based equity earn-back? Can you offer founder-friendly terms in exchange for board visibility?
The best deals come when founders feel supported—not cornered. A 22% dilution can help you take control, but only if the leadership stays engaged and the business actually improves.
15. 68% of bridge rounds occurred between Series Seed and Series A
Early-Stage Startups Are Struggling to Level Up
This stat says a lot about where the real struggle is happening. It’s not the big unicorns. It’s not even the late-stage growth companies. It’s the early-stage startups—the ones caught between their first check and a real institutional Series A.
Nearly 7 out of 10 bridge rounds in 2023 happened in this zone. These are companies with some traction but not quite enough. Maybe the product isn’t fully there. Maybe the market hasn’t caught on yet. Maybe growth just isn’t fast enough. Whatever the reason, investors are making them wait—and founders are bridging the gap.
Founders: Use the Bridge Wisely or You’ll Sink
If you’re between Seed and Series A, you’re in the “prove it or lose it” zone. The money from your seed round got you a prototype, maybe some early customers. But it didn’t quite unlock scalable growth. That’s why you’re considering a bridge.
Now, don’t raise a bridge just because others are doing it. Raise it with a purpose. Be specific about what this money helps you achieve. Is it product-market fit? Is it a revenue target? Is it hiring a key person?
Also, understand that a bridge is not a free pass. Investors are watching. Your goal is to stretch that capital in a smart, focused way. Cut distractions. Ditch features no one is using. Talk to users. Tighten your pitch.
And start preparing for Series A early. You don’t want to scramble in your last two months. Warm up investors. Send monthly updates. Track metrics religiously. If something is broken, fix it fast.
Finally, know when to walk away. Not every company makes it. That doesn’t mean you failed—it means you learned faster than most. If the model isn’t working, don’t keep raising bridges. Either pivot or move on.
What Investors Should Think About
As an investor in this early gap, you’re playing a high-risk, high-impact role. These companies are still figuring things out. But that’s also where the best deals are born.
Look for founder resilience. Are they learning from mistakes? Are they iterating based on user feedback? Are they focused, humble, and adaptable?
Also, structure the bridge round to keep future flexibility. Don’t overcomplicate it. SAFEs or convertible notes with reasonable caps work well. Just make sure the cap reflects current traction—not 2021 expectations.
You’re not just investing in a company—you’re helping it cross the most critical funding chasm. Choose wisely.
16. Only 18% of startups that raised a bridge round in 2022 reached profitability in 2023
Profitability Is Still the Exception, Not the Norm
Startups raise bridge rounds to buy time—but time doesn’t always equal results. Only 18% of startups that took a bridge in 2022 reached profitability in the following year. That’s a stark reminder: extra funding doesn’t fix broken models.
Bridge capital is often used to delay a full fundraise or make it past a tight spot. But unless that money fuels meaningful progress, it becomes a short-term patch that leads nowhere. Investors are watching this trend closely. It tells them who’s being strategic—and who’s just surviving.
Founders: Don’t Mistake Survival for Success
If you took a bridge round last year, ask yourself honestly: are you on track for profitability, or just treading water?
Profitability doesn’t mean massive profit margins. It means covering your burn with real, repeatable revenue. It means proving that your business can stand on its own—even if only temporarily.
Use this stat as motivation to sharpen your focus. What features actually convert users? What channels bring customers with the highest lifetime value? Cut everything else. If it doesn’t support revenue or retention, it’s not urgent.
Also, communicate openly with investors. Share your path to profitability. Highlight how the bridge money is driving that progress. Transparency builds confidence. Silence breeds doubt.
And remember—profitability can be a strategic weapon. In tough markets, profitable startups hold the power. You can negotiate better terms, delay raises, and weather storms others can’t.
Investors: Look for Progress, Not Just Optimism
When you write a check for a bridge round, ask the founders directly: what will profitability look like in the next 12 months?
If they don’t have an answer, that’s a flag. If they do, test their assumptions. Are the numbers real? Are the goals measurable? Are they tracking toward that vision?
Only 18% hit profitability after a bridge. So if you’re backing one, understand what success looks like—and help the founders get there.
Whether through intros, partnerships, or financial guidance, your support can be the difference between growth and stagnation.
17. Bridge rounds typically provided 6–9 months of runway extension in 2023
Buying Time—But Only a Little
Most bridge rounds in 2023 didn’t give startups years of cushion. They bought 6 to 9 months of runway on average. That’s not long. In some cases, it’s barely enough to finish a product update or run a new sales campaign.
But it’s enough—if you use it well. Short runways force focus. They force hard choices. And that pressure, when handled right, can turn struggling startups into lean, focused machines.
Founders: Make Every Month Count
If your bridge round gives you 6–9 months, the countdown starts now. You don’t have time to explore five strategies or build three new features. Pick the most likely path to traction—and double down.
Start by setting one core goal. Maybe it’s hitting $1M ARR. Maybe it’s onboarding 1,000 active users. Maybe it’s cutting burn to reach breakeven. Whatever it is, align your team around it. Every task, every meeting, every dollar should point toward that goal.
Also, track metrics weekly—not monthly. With limited runway, you need fast feedback loops. If something isn’t working after three weeks, change direction.
And make sure you’re managing cash like a hawk. Extend vendor payments. Delay non-critical hires. If you can stretch that 6-month window to 9 or 10, you’ll have more time to prove your value.
Finally, get ahead of the next raise. Start conversations before you need them. That way, when you hit your goal, investors are already watching.
Investors: Guide the Clock
As an investor funding a bridge round, you have a role to play beyond the wire transfer. Time is short—and pressure is high. Help founders prioritize. Offer focus, not just capital.
Stay close. Weekly or bi-weekly check-ins can keep things on track. Encourage founders to kill distractions and report on leading indicators—not just lagging results.
And support fundraising. Introduce them to downstream investors early. Share honest feedback about their pitch, their deck, and their story. Help them hit their milestone and tee up the next round smoothly.
A short runway can either cause panic or trigger discipline. Make sure it’s the second one.
18. 50% of startups raising bridge rounds in 2023 cited difficulty raising a priced round
When the Market Closes Its Doors
Half of all startups that turned to bridge rounds in 2023 did so because they couldn’t land a priced round. That’s huge. It means market conditions—not just company performance—are forcing founders into temporary solutions.
Priced rounds require strong conviction from investors. In uncertain times, that conviction weakens. Startups may have decent metrics but still face hesitation from VCs wary of deploying capital. That’s when bridge rounds step in.
Founders: Understand What’s Driving Investor Reluctance
If you’re struggling to raise a priced round, first try to identify the root cause. Is your traction weak? Is your market out of favor? Is your valuation too high? Or is it just a slow fundraising cycle across the board?
The clearer you are on the problem, the better you can respond.
Next, use your bridge round to address that problem head-on. If investors want more growth, focus on sales. If they want a tighter burn, reduce costs. If they want more clarity, refine your positioning.
Also, manage the narrative. Don’t hide the fact that you raised a bridge. Be honest—but confident. Say: “We’re using this time to strengthen the business so that our next priced round reflects real momentum.”
Transparency builds trust. Investors can forgive a bridge round. What they can’t forgive is confusion.
Investors: Read Between the Lines
If a startup is coming to you with a bridge request, ask them why the priced round didn’t happen. Sometimes the story is obvious. Sometimes it’s not. But it’s your job to find out.
Be cautious of companies hoping the market will “just get better.” Hope is not a strategy. Look for real steps being taken to fix whatever blocked their raise.
If the team is aware, active, and improving, you might be catching them at a pivot point. And that’s where real returns are made.
19. The frequency of down rounds in Europe increased by 2.5x from 2021 to 2023
Europe’s VC Scene Isn’t Immune to Global Shifts
Down rounds used to be rare in Europe. Valuations were climbing, capital was flowing, and startups often raised larger rounds earlier than expected. But between 2021 and 2023, that changed. The number of down rounds across European startups rose 2.5 times in just two years.
This jump shows that global trends hit European startups hard, too. Valuation corrections, investor caution, and tighter macroeconomic conditions caught up with everyone. Whether it was Berlin, Paris, Amsterdam, or London—founders were now facing the same hurdles their U.S. counterparts had started dealing with earlier.
Founders in Europe: The Game Has Changed
If you’re building in Europe, you can’t count on the old rules anymore. Raising a big Series A or B based on future potential is no longer the norm. Investors want to see traction, efficient growth, and smarter spend.
So what should you do?
Start by making your startup investment-ready. That means strong documentation, reliable financial models, and transparent unit economics. Many European founders overlook this, thinking their story alone will carry the raise. In today’s market, it won’t.
You also need to benchmark locally. European VCs tend to be more conservative than their U.S. peers. So if your last round had an American-style valuation, you may be in for a down round now—even if you’ve grown.
The key is not to resist the reset. Embrace it. If you can raise a down round that gives you 18 months of solid runway, take it. Then use that time to level up every part of your business.
Finally, don’t isolate yourself. Join founder networks. Compare notes. Learn how others are navigating the downturn. You’re not the only one feeling the squeeze.
Investors: Build the Bridge, Not the Wall
If you’re a European investor, this 2.5x rise in down rounds is a reminder: your portfolio companies may need more support now than ever before.
You can either protect your earlier stake and walk away—or step in with capital, guidance, and a growth plan.
The startups that survive this correction will be leaner, sharper, and more disciplined. And they’ll remember who stood by them.
Support doesn’t always mean writing a big check. It could mean helping shape the narrative, introducing new co-investors, or guiding a strategy reset.
If you invest wisely during the down round phase, you’ll likely own a larger piece of a much stronger company down the line.
20. 40% of late-stage VC deals in 2023 involved valuation resets
The Late-Stage Glow Is Fading
Late-stage startups used to be seen as nearly risk-free. Big valuations, big growth, and big exits were the expectation. But in 2023, 40% of these deals came with a valuation reset—meaning a lower price than the prior round, even if revenue was growing.
This shift is significant. It means the most mature, previously de-risked startups were now subject to the same scrutiny as early-stage ones. Market size, business model sustainability, and profitability potential are now front and center—even at the top end of the funnel.
Founders: Accept the Reset and Rebuild the Value
If you’re leading a late-stage company, this stat should push you to rethink everything. Are you raising to grow—or just to extend the runway? Are you priced for profitability—or still banking on future hype?
The first step is honesty. If your valuation from 2021 was over-inflated, acknowledge it. Don’t try to defend the number. Focus on proving your business fundamentals now.
That means prioritizing actual margins over vanity metrics. It means fixing burn, reducing team bloat, and making sure every function is ROI-positive.
Also, get your board aligned early. Late-stage down rounds are complex, and you’ll need consensus to move fast. Don’t surprise your investors. Give them visibility, share data, and involve them in strategy.
And one more thing—don’t be afraid to reset expectations with your team. If stock options are underwater, acknowledge it. Offer retention packages. Keep your top talent engaged.
A down round at this stage can feel like a fall from grace. But handled well, it can also be a setup for a stronger, more sustainable future.
Investors: Reset Doesn’t Mean Reject
Just because a company is resetting its valuation doesn’t mean it’s failing. Many late-stage startups raised at sky-high numbers that simply weren’t tied to revenue. A lower valuation now may just reflect better realism—not poor performance.
So, focus on trajectory. Are they growing responsibly? Is churn under control? Are gross margins improving? If yes, then the reset is your opportunity.
Use this moment to clean up the cap table if needed, revisit governance, or even structure the deal with better downside protection.
The best deals often come when others are too cautious to act. If you do your homework, a reset round could be your chance to back a unicorn on its second wind.
21. 29% of bridge rounds in 2023 were investor-led to protect earlier investments
Investors Are Stepping In—But It’s Not Always a Rescue
Almost a third of bridge rounds in 2023 were led not by new capital, but by existing investors trying to protect their earlier bets. This tells us something important: investors don’t just care about upside—they also care about not losing everything they’ve already put in.
Sometimes, an investor-led bridge is a sign of support. Other times, it’s a sign of concern. Either way, it changes the power dynamic in the room.
Founders: Know What the Support Really Means
If your existing investors are leading your bridge round, ask yourself why. Are they doubling down on a clear plan—or just buying time?
Before taking the money, align on expectations. Will this round give you real breathing room? Or will it lead to more pressure, shorter timelines, and heavier oversight?
Also, be clear on structure. Investor-led rounds often come with tighter terms—like liquidation preferences, board seats, or conversion rights. Make sure you understand what you’re giving up.
Most importantly, communicate openly. If your investors believe in the business, show them you’re all-in too. Build trust. Prove you can execute. And give them a reason to keep backing you.
A bridge led by insiders is your second chance. Use it wisely—or it might be your last.
Investors: Step in Strategically, Not Emotionally
If you’re leading a bridge round to protect your stake, be strategic. Don’t just throw good money after bad. Set clear milestones. Define what success looks like in the next 6 to 12 months.
Also, use this opportunity to strengthen your influence. Help shape the next steps—whether that’s a pivot, a new hire, or a go-to-market shift.
And don’t go it alone. If possible, bring in a small syndicate. Shared risk is smart risk.
Backing a struggling startup isn’t about ego—it’s about focus. If the fundamentals are sound and the vision is real, your intervention might just save the story.
22. In Q2 2023, bridge rounds outnumbered new Series A rounds for the first time since 2017
The Growth Engine Stalled
This milestone is striking: for the first time in six years, more startups turned to bridge rounds than locked in new Series A funding. That’s not a blip—it’s a signal. Something is broken in the fundraising pipeline.
Series A used to be the natural next step after a strong seed round. You built something real, found some product-market fit, maybe hit $1M in ARR, and then the Series A followed. But in 2023, that pipeline got clogged. Investors became more cautious. Metrics had to be sharper. Stories had to be tighter.
So instead of raising Series A, startups bought time with bridge rounds. And the numbers show this wasn’t the exception—it became the norm.
Founders: Adjust Your Roadmap
If you’re heading into a Series A raise, this stat should push you to raise your standards. What you thought was “good enough” might not be anymore.
Start by auditing your progress. Do you have repeatable revenue? Is churn under control? Have you proven that your users stick around, pay, and grow?
If the answer is “almost,” then maybe a bridge makes sense. But don’t treat it like a shortcut. It’s a focused window to fix very specific things. Treat it like an accelerator—not a timeout.
Also, rethink your narrative. A great pitch in 2021 sounds generic in 2023. Investors are hearing the same buzzwords and big visions. They want focus, clarity, and evidence.
And remember: the goal of a bridge isn’t just to stay alive. It’s to become unignorable. Use it to hit that next key milestone that turns a maybe into a yes.
Investors: Be the Filter, Not the Blocker
If you’re an investor watching this shift, your role is critical. Founders are stuck between progress and capital. They need honest feedback and smart money.
Don’t just say no to Series A hopefuls. Tell them why. Help them identify the gaps. And if you believe in them, offer a bridge—but do it with structure and support.
And if you’re seeing a bridge instead of Series A, ask what’s missing. Is it a GTM issue? A leadership gap? A pricing problem? If you help fix that problem, you don’t just protect your stake—you help the startup rise to the next level.
23. Down rounds were more common in consumer startups, affecting 33% in 2023
The Consumer Market Lost Its Shine
In 2023, one-third of consumer startups experienced a down round. That’s a big shift. For years, consumer-facing products were the darlings of VC. The growth was fast, the markets were huge, and the stories were exciting.
But things changed. The cost of acquiring users shot up. Consumer sentiment dropped. E-commerce slowed. And suddenly, even high-profile brands were struggling to raise at their old valuations.
Down rounds hit hardest where margins were thin and loyalty was low. And that’s a reality many consumer startups had to face.
Founders: Focus on Lifetime Value, Not Just Growth
If you’re building in consumer tech or products, this stat should refocus your thinking. Growth is no longer enough. Investors want profitable growth.
Start by understanding your unit economics. What’s your CAC? Your LTV? How long does it take to break even on a user? If you don’t know these numbers cold, you’re already behind.
Next, optimize retention. Getting new users is expensive. Keeping them is where the magic happens. Look at churn rates. Improve onboarding. Build community. Reward repeat purchases.
Also, watch your burn. Consumer startups are famous for overspending on brand and ads. In 2023, frugality is a superpower. Spend where it counts—and be able to prove it.
And don’t hide from the down round. If it happens, use it as a clean slate. Reset expectations. Simplify your story. Focus on customers who love you, not just the ones who click once.
Investors: Dig Deeper in Consumer Plays
If you’re investing in consumer startups, this trend should make you look harder at the fundamentals.
Ask tough questions. Is their brand sticky? Are customers coming back? Are they dependent on paid acquisition?
Look for founders who are obsessed with their customers. The best consumer businesses come from deep insight, not just flashy design.
And if a down round is on the table, look for silver linings. Are they growing revenue even if the valuation dipped? Are margins improving? If the answers are yes, this could be your chance to invest with better terms—and less competition.
24. 71% of startups that raised a down round also reduced their workforce
Cost Cuts Became a Survival Strategy
This stat paints a clear picture: nearly three out of four startups that took a down round also laid off part of their team. That’s not a coincidence. It’s a calculated move to extend runway and show investors that the business is serious about becoming leaner.
Cutting headcount is painful. But in 2023, it was often necessary. Revenue wasn’t keeping up with burn. Capital was harder to come by. And startups had to prove they could do more with less.
Founders: How to Cut Without Killing Culture
If you’re facing a down round, you may also be considering layoffs. It’s not an easy decision. But done thoughtfully, it can be part of a strategic reset—not just a panic move.
Start with transparency. Your team deserves to know why cuts are happening. Share the context, the numbers, and the plan moving forward. Silence breeds fear. Clarity builds trust—even in hard times.
Next, be surgical. Don’t just cut across the board. Cut based on strategy. What roles align with your next phase of growth? What functions are non-essential right now? Keep the people who will drive the next chapter.
Also, take care of those who leave. Generous severance, warm intros, and emotional support matter. Your culture will be shaped by how you handle exits just as much as how you celebrate wins.
Finally, stabilize fast. The team that remains needs clarity and confidence. Over-communicate. Set short-term goals. Celebrate small wins. Help people believe the ship is still sailing.
Investors: Support the Hard Choices
As an investor, workforce cuts aren’t just numbers—they’re signals. They show whether a founder is willing to make tough calls.
But watch how it’s done. Are the cuts strategic, or random? Is the founder communicating well? Are they keeping morale intact?
Also, help where you can. Offer support in handling layoffs. Make intros for outgoing team members. Help reset hiring plans for the next phase.
Layoffs plus a down round is a brutal combo—but also a potential turning point. If the founder leads with clarity and courage, it could be the moment their company actually starts to thrive.
25. 52% of VCs surveyed in 2023 expected more down rounds through 2024
Investor Expectations Signal a Prolonged Reset
When more than half of venture capitalists openly say they expect down rounds to keep rising into the next year, it’s a sign that the market correction isn’t over. Optimism is being replaced by realism. The party of easy capital and sky-high valuations has ended—and VCs are adjusting their forecasts accordingly.
What this tells us is important: valuation pressure isn’t going away. Even startups that are growing may have to raise at lower prices. Founders need to plan not just for one tough round, but possibly two.
Founders: Build for the Long Haul, Not the Bounce
If you were hoping for a quick recovery in funding dynamics, this stat is a reality check. More down rounds are coming. That means you need to think differently.
First, stop timing the market. If you’re delaying your fundraise hoping valuations improve next quarter, you may miss your window entirely. Instead, raise when you’ve got a strong story and clear momentum—even if the price isn’t what you hoped for.
Second, extend your runway as much as you can. Focus on revenue, reduce burn, and consider alternative sources of funding like grants or customer prepayments. Every month you can survive without raising gives you more leverage later.
Third, keep your team informed. Set expectations around equity dilution, option refreshes, and the bigger picture. If everyone understands that these next 12–18 months are about resilience, you’ll keep morale high even in lean times.
And finally, be proactive with your cap table. Down rounds change dynamics. Get ahead of the impact on ownership and plan how you’ll manage it with existing investors and employees.
Investors: Use This Window Wisely
VCs expecting more down rounds doesn’t mean they’re sitting on the sidelines—it means they’re preparing for better-priced deals.
As an investor, this is your chance to back solid companies at fairer valuations. Look for startups with strong teams, improving metrics, and rational expectations. These are the companies that can use a down round to reset and soar.
But be thoughtful. Don’t use market conditions to pressure founders into impossible terms. Structure deals fairly. Offer support, not just capital. The relationships you build during a downturn will shape your best exits in the years ahead.
26. In 2023, the average time between bridge rounds and the next priced round increased to 14 months
The Waiting Game Got Longer
Bridge rounds are supposed to be temporary. A quick injection of cash to get to the next milestone, then a clean priced round. But in 2023, that timeline stretched. Startups that raised bridge rounds waited an average of 14 months before they could raise their next priced round.
That’s longer than most founders expected—and longer than most bridge funds are designed to last. It creates challenges around runway, team morale, investor confidence, and execution.
Founders: Treat the Bridge as Your New Normal
If you’ve raised a bridge, you need to plan like it’s going to last longer than you hoped. Fourteen months is a long time in startup life. So don’t approach it like a sprint. Approach it like a strategic phase of controlled growth.
Start by reviewing your budget. Is your spend rate sustainable over a longer runway? If not, adjust now. The worst thing you can do is burn fast under the assumption you’ll raise again in 6 months.
Next, focus on building leverage. What proof points will make your next priced round a no-brainer? Maybe it’s recurring revenue, expansion into a new segment, or a key partnership. Pick one—and chase it relentlessly.
Also, keep communication tight. Your bridge investors want to know how you’re using their capital. Send monthly updates. Share progress, setbacks, and lessons. Trust builds during the quiet periods—not just when you’re raising.
Finally, line up future capital early. Don’t wait until you’ve hit your milestone to start outreach. Warm up leads, test your deck, and create buzz ahead of time. The longer time to next round means you need more lead time, not less.
Investors: Reset Your Time Horizon
If you participated in a bridge round, prepare for a longer wait. Fourteen months means more time for follow-ups, more time for coaching, and more time to assess whether the company is tracking.
Don’t just check in quarterly—become a hands-on partner. Ask for KPI updates. Offer help with hiring, go-to-market, or even customer introductions.
Also, reassess your expectations. Many companies are growing slower right now—but that doesn’t mean they’re failing. The winners of the next cycle are often built during the slow periods.
Patience now can deliver huge rewards later—if you’re backing the right founders with the right focus.
27. Convertible debt used in bridge rounds had an average interest rate of 6.5% in 2023
The Cost of Capital Is Going Up
In 2023, the average interest rate on convertible debt used in bridge rounds hit 6.5%. That’s a clear sign that money isn’t as cheap as it used to be. Even in early-stage deals, investors are looking for downside protection—and that includes interest payments.
This rate may not seem huge at first glance, but over 12–18 months, it adds up. It means founders are paying a real cost for their cash, even before conversion.
Founders: Read the Fine Print—It Matters Now
If you’re considering convertible debt for your next bridge round, don’t just focus on the cap and discount. Look closely at the interest rate, maturity date, and repayment terms.
At 6.5%, interest adds pressure. It’s money you may owe later—either as cash or extra shares at conversion. Make sure your model reflects that.
Also, clarify how the interest accrues. Is it simple interest or compound? Does it convert with the principal, or is it due in cash if you don’t raise again?
Most importantly, be honest with yourself: will you convert this note, repay it, or extend it? Your answer will determine how to structure it.
If you think your next round will be delayed, negotiate flexibility now. Ask for an option to extend. Consider adding triggers that automatically convert if certain metrics are met. Protect your downside while staying transparent with your investors.
And finally, don’t overload your balance sheet. Multiple notes with different rates and terms can create a messy cap table. Keep it clean, clear, and manageable.
Investors: Use Interest as a Risk Buffer—Not a Weapon
If you’re writing convertible notes with interest, remember the purpose: to balance risk, not squeeze founders.
A 6.5% rate is fair—but only if the structure is clear and the founder understands the math. Don’t bury terms in legalese. Make sure there’s mutual understanding about what success looks like and how conversion will happen.
Also, be open to flexibility. If the startup needs more time or wants to restructure the note, assess it based on progress—not just dates.
Convertible debt with reasonable interest can protect your capital and align incentives. But it only works if it’s paired with trust, communication, and a shared vision for what comes next.
28. 26% of bridge rounds in 2023 had valuation caps lower than the prior round’s valuation
The Hidden Down Round in Disguise
A valuation cap is meant to set a ceiling on the price at which a convertible note or SAFE will convert into equity. But when that cap is lower than the company’s last valuation, it becomes a quiet reset. In 2023, more than a quarter of bridge rounds had valuation caps below the company’s prior round. That’s essentially a down round—just without the headlines.
These deals allow founders to raise quickly, avoid renegotiating full priced rounds, and delay public acknowledgment of a lower valuation. But the long-term effects are real, especially when conversion hits.
Founders: Don’t Let a Quiet Discount Become a Future Explosion
If you’re setting a valuation cap below your last round, understand what you’re really doing. You’re sending a message to investors, even if you’re not calling it a down round out loud.
First, model out how this cap affects your ownership post-conversion. Don’t assume it’ll be harmless. In some cases, stacked SAFEs or notes with low caps can lead to massive dilution down the road—especially if your next raise is delayed.
Second, communicate with your team. Quiet caps may look cleaner on the outside, but they eventually show up in option value and perceived momentum. If employees don’t know what’s happening under the hood, they’ll start to question everything when their equity looks less valuable.
Third, consider ways to offset the impact. Can you refresh equity grants for your top team members? Can you negotiate a step-up clause with investors if metrics are hit? A flexible cap structure can align everyone better without the psychological baggage of a formal down round.
And most of all, plan for what comes next. Low caps might solve today’s problem—but they’ll affect how investors see your next round. Be ready to explain why the cap was set where it was and how the company has grown since.
Investors: Use Lower Caps Responsibly
As an investor, a lower cap gives you protection and upside. But don’t weaponize it. Structure it in a way that helps the company win, not just you.
If you’re pushing for a low cap, balance it with founder-friendly terms. Offer support, not just cash. Make it clear that you’re betting on the company long term—and not just looking for a discount.
You can also use this as an opportunity to structure conditional terms. For example, agree on a low cap today, but include provisions that raise the cap if certain milestones are hit. That gives founders incentive and keeps things fair.
Remember: great returns come from partnerships, not just positioning.
29. In 2023, 38% of founders delayed fundraising due to fear of a down round
The Psychology of Fundraising Matters
Nearly 4 out of 10 founders chose to wait rather than raise funding in 2023—because they were worried about the signal a down round would send. That hesitation is understandable. No one wants to admit they’re worth less than they were last year.
But the fear of a down round can sometimes do more damage than the round itself. Waiting too long often leads to worse terms, lower leverage, and even running out of cash entirely.
Founders: Don’t Let Fear Dictate Strategy
If you’re delaying a raise just because of optics, ask yourself: what’s the real cost?
Are you sacrificing momentum? Risking layoffs? Burning too much runway with too little growth? If yes, it might be smarter to face the down round now and regain control.
A down round isn’t a verdict on your company’s future—it’s a reflection of market conditions and temporary valuation compression. Framed correctly, it can actually boost confidence. It says: “We’re adjusting, staying lean, and focused on building.”
So how do you navigate this?
Start by being honest—with yourself and your team. If your prior valuation isn’t justified anymore, let it go. Anchor the conversation around the future, not the past.
Next, build a strong narrative. Talk about the lessons you’ve learned, the changes you’ve made, and the path forward. Investors respect founders who adapt.
And lastly, raise before you need it. The best down rounds are the ones done with momentum—not desperation. Show that you’re in control, even if the terms are tough.
Investors: Remove the Stigma
If you want your portfolio to thrive, stop treating down rounds like taboo. Normalize them. Talk openly about why they happen and what they mean.
Encourage your founders to make proactive decisions—not reactive ones. Support them with intros, feedback, and even bridge capital if it buys time for the right plan.
The startup world will always have ups and downs. The founders who win are the ones who keep building through both.
30. Among unicorns, 19% experienced a down round from 2022 to 2023
Even the Giants Aren’t Immune
Unicorns—those companies valued at over $1 billion—once felt untouchable. But in just one year, nearly one in five experienced a down round. That’s a dramatic shift. It tells us that valuation corrections hit everyone, regardless of size or status.
For the ecosystem, this stat is a powerful reminder: no one is too big to be reevaluated. And for founders and teams inside those unicorns, it’s a signal to take financial discipline seriously.
Founders: Growth Stage Isn’t the Finish Line
If you’re running a unicorn, a down round isn’t just about the money—it’s about perception. Media attention, employee morale, and future recruiting all get affected. That’s why it’s even more important to get ahead of the story.
Start by setting internal expectations. Let your team know what’s happening and why. Show that the mission is still the same—even if the valuation has changed.
Next, control the external narrative. If you’re doing a down round, shape the message: “We’re resetting to focus on efficiency, profitability, and long-term sustainability.” This isn’t spin—it’s smart communication.
Also, use the moment to clean house. Look at your product lines, team structure, and go-to-market. Down rounds often give you the political capital to make tough calls. Use that power to create a leaner, stronger version of your business.
And don’t forget: if unicorns are experiencing down rounds, it’s not about you—it’s about the environment. The question isn’t “How did this happen?” It’s “What are we going to do next?”
Investors: A Lower Valuation Can Still Mean a Big Win
If your unicorn portfolio includes companies that took a valuation hit, keep perspective. A company worth $3 billion that resets to $1.5 billion is still valuable—if it’s growing, executing, and adapting.
Support your unicorn founders through the reset. Help them maintain momentum. Give them access to your network, your strategic insights, and even new pools of capital if needed.
Also, use this phase to recalibrate expectations. Many unicorns raised at peak-market multiples. Today’s valuation may be more honest—and more sustainable. That’s a good thing.
When the market rebounds, the companies that survived the reset will be the first to lead the next wave of breakout growth.
Conclusion:
The data we’ve explored in this article paints a clear picture: we’re in a new era of venture funding. Bridge rounds are up. Down rounds are common. And investor expectations have changed.
But within these trends lies opportunity.
