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Angels, Dragons and Vultures: How to Tame Your Investors And Not Lose Your Company by Simon Acland

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DOWN ROUNDS

If, in spite of those tricky calculations, that up round took place in a mood of triumphant serenity, just imagine the mood when a down round has to occur. A Stygian gloom descends, and in the murk a battle takes place between the shareholders who are the unfortunate denizens of the down round hell.

Why so? you might ask. Surely everyone suffers some painful dilution, and the Vulture may face the humiliation of having to devalue his investment, but at least everyone’s in Charon’s boat together.

Not necessarily so. Follow one path through the numbers in our example. Let’s say that the best offer from a new investor is to invest $2 million for 40% of the equity, giving a post-money headline valuation of $5 million. Let’s say that the ...

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