Arab Press

بالشعب و للشعب
Sunday, Jun 01, 2025

For Silicon Valley Startups, The Worst Is Yet To Come

For Silicon Valley Startups, The Worst Is Yet To Come

As the market downturn drags on and investor cash remains hard to come by, more startups will start to run out of money, experts say.
The startup world has had a tough year - plagued by mass layoffs, plummeting venture capital investment and the chaotic collapse of Silicon Valley Bank. But many in tech believe that the worst is yet to come.

As the market downturn drags on and investor cash remains hard to come by, more startups will start to run out of money, experts say. Some venture-backed companies will be forced to raise new funding even if it means agreeing to a lower valuation than they once secured, a deal called a down round, dreaded by founders and investors alike.

"We haven't had a compression in values like this in more than 20 years. It's an absolute bloodbath," said Cameron Lester, global co-head of technology media and telecom investment banking at Jefferies, adding that companies that are able to raise money, even at a lower valuation, are the lucky ones. "What matters is you're a survivor," Lester said.

Toward the end of 2022, down rounds hit near five-year highs, according to research firm Prequin. And early data for the first quarter shows roughly 7.5% of all venture funding rounds in US were down rounds, according to PitchBook - a number it expects will climb. High-profile companies like financial giant Stripe Inc., Swedish payments startupKlarna Bank AB and security firm Snyk have already taken valuation cuts, and others like Blockchain.com are said to be in talks to do the same.

Founders assiduously avoid down rounds because they signal that a company's to-the-moon trajectory has been derailed, battering morale and wiping out millions, and sometimes billions, of paper wealth for startup founders and employees. They also represent a loss for venture capitalists and their investors, called limited partners, and can result in legal headaches.

Yet ask most tech industry professionals and they will grimly confirm that such deals are becoming inevitable. "We expect down rounds, especially toward the second half of this year, to really pick up," said PitchBook analyst Kyle Stanford. The coming wave of lower valuations, is "common knowledge," said Alfredo Silva, a partner at law firm Morrison & Foerster. In March, the firm held a workshop on how to navigate the legal complexities that can come along with such rounds.

While many companies have cut costs and taken on debt to avoid raising money on unfavorable terms, those delay tactics have limits. More than 400 companies - one-third of all unicorn startups, those valued at $1 billion or more - haven't raised new funding since 2021 according to PitchBook. That's a long time for a company that isn't yet turning a profit, coasting on the cash they brought in from previous funding rounds. Most venture backed companies usually raise every year or two, and about 94% of tech unicorns are unprofitable according to PitchBook.

"Some of these companies remind me of Scottish nobility that haven't raised money in seven generations," said Mathias Schilling, co-founder of venture firm Headline. "They sit and drink champagne while it rains through the roof."

Schilling's advice: "Get real, take the down round."

Some major startups are already taking the hit. Stripe completed a financing deal valuing it at $50 billion, or about half its 2021 valuation. Several crypto startups have taken or are taking down rounds, as are multiple companies overseas, including Klarna, which saw its value fall more than 85%. Earlier this month, workout startup Tonal Systems Inc. raised money from a private equity firm at a reported $550 million price tag, or one-third of its valuation in 2021.

But as more startups are learning, a down round is better than no funding round. Venture investing in all startups has declined precipitously in recent months. The number of startups that raised money in the first quarter of 2023 hit its lowest level in five years - a pace that falls far short of demand. An PitchBook internal estimate shows that for every $3 that startups need, just $1 is being deployed.

"We're actually in one of the worst times in recent memory in venture activity," said Avlok Kohli, chief executive officer of AngelList, which offers fundraising and management tools to startups, investors and fund managers. "It's the lowest activity we've seen and the lowest positive activity we've seen."

Driven by battered valuations for publicly traded tech companies, mature startups preparing for an initial public offering were impacted first. Younger startups, still years from public debut, were initially spared. But Mr Kohli said that's changed in recent months, with the pain trickling down to early companies as well, because no one want to write a check that's "a bridge to nowhere."

Investors are becoming more skeptical and driving harder bargains for every startup. That's true even in the buzzy space of artificial intelligence - a rare bright spot in the venture investing landscape which has been flooded with talent and cash to create new companies.

"Is it overheated? Could there be a bubble? Sure," said Mr Kohli, who's optimistic about the sector. But he noted that great expectations are a key facet of the world of tech, even though the risks are always high.

"Statistically as a startup, you won't make it," Mr Kohli said. "That's just math."
Newsletter

Related Articles

Arab Press
0:00
0:00
Close
OPEC+ Agrees to Increase Oil Output for Third Consecutive Month
Turkey Detains Istanbul Officials Amid Anti-Corruption Crackdown
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
European and Arab Ministers Convene in Madrid to Address Gaza Conflict
Head of Gaza Aid Group Resigns Amid Humanitarian Concerns
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
Netanyahu Accuses Starmer of Siding with Hamas
Calls Grow to Resume Syrian Asylum Claims in UK
UAE Offers Free ChatGPT Plus Subscriptions to Citizens
Denmark Increases Retirement Age to 70, Setting a European Precedent
Iranian Director Jafar Panahi Wins Palme d'Or at Cannes
Israeli Airstrike Kills Nine Children of Gaza Doctor
Lebanon Initiates Plan to Disarm Palestinian Factions
Iran and U.S. Make Limited Progress in Nuclear Talks
Trump Administration's Tariff Policies and Dollar Strategy Spark Global Economic Debate
OpenAI Acquires Jony Ive’s Startup for $6.5 Billion to Build a Revolutionary “Third Core Device”
Turkey Weighs Citizens in Public as Erdoğan Launches National Slimming Campaign
UK Suspends Trade Talks with Israel Amid Gaza Offensive
Iran and U.S. Set for Fifth Round of Nuclear Talks Amid Rising Tensions
Russia Expands Military Presence Near Finland Amid Rising Tensions
Indian Scholar Arrested in Crackdown Over Pakistan Conflict Commentary
Israel Eases Gaza Blockade Amid Internal Dispute Over Military Strategy
President Biden’s announcement of advanced prostate cancer sparked public sympathy—but behind closed doors, Democrats are in panic
Mount Lewotobi Laki-Laki Erupts Again, Spewing Ash Cloud over Flores Island
Indian jet shootdown: the all-robot legion behind China’s PL-15E missiles
The Chinese Dragon: The True Winner in the India-Pakistan Clash
Australia's Venomous Creatures Contribute to Life-Saving Antivenom Programme
The Spanish Were Right: Long Working Hours Harm Brain Function
Did Former FBI Director Call for Violence Against Trump? Instagram Post Sparks Uproar
US and UAE Partner to Develop Massive AI Data Center Complex
Apple's $95 Million Siri Settlement: Eligible Users Have Until July 2 to File Claims
US and UAE Reach Preliminary Agreement on Nvidia AI Chip Imports
President Trump and Elon Musk Welcomed by Emir of Qatar Sheikh Tamim with Cybertruck Convoy
Strong Warning Issued: Do Not Use General Chatbots for Medical, Legal, or Educational Guidance
NVIDIA and Saudi Arabia Launch Strategic Partnership to Establish AI Centers
Trump Meets Syrian President Ahmad al-Shara in Historic Encounter
US and Saudi Arabia Sign Landmark Agreements Across Multiple Sectors
Why Saudi Arabia Rolled Out a Purple Carpet for Donald Trump Instead of Red
Elon Musk Joins Trump Meeting in Saudi Arabia
Trump says it would be 'stupid' not to accept gift of Qatari plane
Quantum Computing Threatens Bitcoin Security
Michael Jordan to Serve as Analyst for NBA Games
×