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Survival Mode and Preparing for a Potential Down Round

Coindesk | Daniel Kuhn | Jun 7, 2022

Blockfi downround - Survival Mode and Preparing for a Potential Down RoundBlockFi is reportedly worth $2 billion less than previously estimated. How should crypto navigate a time of tightening monetary policy and venture capital financing?

Venture capitalists (VCs), like crypto retail traders, essentially invest based on gut instinct. Down rounds are when a company raises capital at a lower valuation. It means that the stock price paid in previous investing rounds has declined. Sometimes this process is called “momentum,” as in a growing company or an appreciating coin is sure to do well if it has been doing well.

Investing clearly has a psychological component. “In Silicon Valley venture financing, a ‘down round’ is to be avoided at all costs,” the Wall Street Journal has boldly proclaimed.

Startups worry that the damage of down round is far-reaching for recruiting efforts, existing employee morale, customers and partners.

See: What to Know About Borrowing Against Crypto

Yesterday, Frank Chaparro at The Block reported that crypto lender BlockFi is set to raise an undisclosed amount of money at a $1 billion valuation, down from its previous round when it was valued at $3 billion.

This is the largest profile down round to have occurred since the beginning of the crypto market’s downcycle. It speaks to the bearish mood, imminent monetary tightening and a likely pull back in venture capital financing that has acted as an accelerant for token markets.

Chaparro called it “a striking development” considering the “high degree of venture capital activity only months before.”

In BlockFi’s case, it might also speak to the regulatory uncertainty around its core business after paying a $100 million penalty to several securities regulators regarding a high-yield lending product.

See: a16z Releases 2022 State of Crypto Report: 5 Key Takeaways

Yet, BlockFi is still a unicorn, or a private company with a $1 billion valuation. At the beginning of the year, there were more than 900 such companies – a smattering of them in crypto – compared to 80 total in 2015, according to CBInsights.

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NCFA Jan 2018 resize - Survival Mode and Preparing for a Potential Down RoundThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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