You remind me of an anecdote about an American working in Asia. They were constantly frustrated with communication difficulties. One day, they felt they finally were on the same page with a coworker and they said "We are thinking along parallel lines." to express this. Coworker agrees.
Later, the problems came back. They referred back to that conversation. Their Asian coworker says "Yes. Parallel lines never meet."
Gotta love the straight German way.
It is usually not the best explanation and it actively causes all kinds of problems. I like to give push back against this common assumption wherever possible.
The Pan Am smile: https://www.urbandictionary.com/define.php?term=Pan%20Am%20s...
Is it? The description on that page is just about having multiple conversations at once, not having them all start in the same place.
Also, starting in one place and going different directions is basically the opposite of parallel lines, so this makes zero sense as a justification of the punchline.
https://www.ft.com/content/c2fe7814-536a-11e8-b3ee-41e020920...
Which is fine. Plenty of tech companies have already demonstrated IPO downrounds are fine.
Why? Especially because this is the foundation of your entire argument.
Read more: Down Round https://www.investopedia.com/terms/d/downround.asp#ixzz5U48D... Follow us: Investopedia on Facebook
If you would have been happy selling shares at X valuation, if only that high-valuation deal had never happened, then the level of dilution is acceptable to you.
"This down round is bad because it's undervaluing and over-diluting" is an easy to understand argument.
"This down round is bad because a previous round overvalued the company, even though the down round is the correct valuation and the correct dilution" is an argument that needs more justification.
If the valuation is flat-out too low, then the fact that it would be a down round has nothing to do with the problem. A too-low valuation is a problem even if it's higher than your last valuation.
Mistake is here.
Taking money doesn't necessarily mean you have to go on an expansion spree.
Or, if it does, you need to make this decision before you take the money.
Whenever you raise you should always consider the valuation you'll be aiming for at the following round and the metrics needed to achieve it and whether they're achievable.
Guess who the guys who gets hosed are? Founders and employees of the company who have options. Suddenly you and your co-workers have almost worthless shares in a company that isn't doing well. If you're at the start up for the potential upside it's at that point you really need to look at moving on. So suddenly a down-round isn't just a down-round it's also a "lose all the good employees" round.
It sounds good - they come in and offer a huge investment at a high valuation, higher than anyone else. About time someone recognizes how valuable your company actually is!
So you take it. You make an announcement, everyone oos and aahs over your new valuation. Talent flocks to you, fuck yea. Things are going great!
Fast forward some time. You need some more investment to go chase opp X. Or maybe you burned thru cash, who knows. So you start fundraising. investors look at your numbers and say...umm...you've shown some good growth but we dont agree with Softbank's valuation. We will invest in a downround, or come back when you've posted even more growth.
Crap. You need money NOW not later. You did NOT realize that high valuation was a double edged sword. And a downround is totally out of question.
Also working with them is...challenging. Gotta love those 8am calls (latest they can do Tokyo time). They ask for metrics that kind of make sense but are different than how you run things so it is a complete waste of time. On the phone they are oh so polite, but you're never sure what they're actually thinking.
You're asking yourself why you took their money again? They have had zero strategic impact (they're a Japanese telco) and now it's making fundraising more difficult.
Fun times. If I see a company take SB money I assume they are declining (or soon will) or greedy / short sighted. Or there is the rare actual strategic benefit sure. But most times there is none.
So why did we work take the money? Sounds like they wanted to avoid going public. But I wonder if they did their homework on this one.