Anecdotally, it seems recent years have produced more down rounds than the VC scene has experienced in the past. There's been a lot of talk about overvalued startups, with investors and industry commentators voicing concern that big-name companies like Uber, WeWork and Airbnb may not live up to their most recent private valuations.
If these concerns are veritable, then more and more startups would currently be fundraising at lower valuations. But data from the most recent PitchBook VC Valuations Report suggests otherwise. VC valuations continue to rise, with every funding stage seeing decade-high medians. And there hasn't been an increase in the number of down rounds among VC-backed companies in the US—in fact, the percentage of down rounds has dropped since it reached a high-water mark in 2009.
So far this year, the percentage of down rounds has stayed just about on par with that of the last four years. Here's a closer look at the percentage of up, flat and down rounds for VC-backed companies in the US:
[Note: Up, flat or down rounds are calculated using a combination of comparing share price and the pre- and post-money valuations of previous and current rounds; e.g. if the price per share in the most recent round was the same as in the prior financing OR the post-money value of the old round is the same as the new round, then that would be classified as a flat round.]
While the percentage of down rounds has held steady in the US, more than 10% of startups that have raised funding this year have done so at lower valuations. Below are a few US-based startups that have raised down rounds since the beginning of the year.
In March, DraftKings raised more than $100 million in a round led by Eldridge Industries (the investment firm headed up by Todd Boehly, part owner of the Los Angeles Dodgers). The funding valued the fantasy sports company at $1 billion, a major drop from the $2 billion valuation it reached back in 2015. That round came after DraftKings had agreed to merge with rival FanDuel but before the US Federal Trade Commission moved to block the deal in June.
Founded in 2014, Ello was originally lauded as a potential competitor to Facebook. But in the intervening years, interest in the social network waned, and although it still exists as a platform for artists, its value has declined. The startup raised $2.5 million in March at a valuation of just $5.5 million, a significant drop from the $30 million value it reached in 2015.
The founder of Direct Eats told Food Navigator-USA in 2016 that his online food marketplace could be a billion-dollar company within five years. At that time, the company was worth roughly $22 million. In May, it raised $2 million at a valuation of $14.5 million, putting it even further away from the founder's lofty valuation goal. Direct Eats sells food products online—a business model that has seen ever-increasing challenges as Amazon attempts to take over the grocery delivery space.