Recap vs Down Round

Unicorns that take a dirty term sheet are on a path to either run out of money or get recapped. A down round now will be less painful than either of those so take it.

To really understand the tradeoff here as a founder, you can boil this down to the following mechanics:

Pain from weighted average anti-dilution < Pain from recap

The economic pain inflicted on founders from a down round are a result of the anti-dilution protections for your existing investors. Fenwick says (source pdf) that 100% of unicorn deals in their data set (n=37) included weighted average anti-dilution protection.

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Startup guy and early stage investor - NYC

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John Ryu

John Ryu

Startup guy and early stage investor - NYC