When Investors Get Tough – Communicating Around Down, Flat and Debt Rounds of Funding (part 1)  

Congratulations, your company secured funding! That’s incredibly tough in 2023, but before you get stars in your eyes about the media coverage, you must consider the context of the round. Amounts of funding, the industry segment, investors involved, and business metrics all play a role in how reporters cover these news events. And while they are BIG news for your organization, you may be surprised by what reporters say when they dig into the details of your latest raise. 

Crunchbase reported that startup investments dropped 63% in Q4 2022 – an abrupt turn after record-high investments in 2021 ($329.1 billion!). As inflation drives costs up and slows tech deal cycles, we’re seeing the tone of funding rounds change. What was traditionally viewed as a “win”—e.g., with each successive round of funding, the company’s valuation increased exponentially (an “up” round)—no longer tells the same story. However, the media have not necessarily adjusted to the new reality founders and CEOs face today, and it is critical to building a funding story that will resonate with this audience. 

What happens when your company takes on funding but not with an increased valuation? Before we talk media strategy, first, we must align on definitions:  

  • Flat” or “extension” round – This refers to a new investment that does not increase the valuation of the company. New investors are coming aboard months or even a year after the last round of funding, but only investing at that last point of valuation. Some refer to it as an “extension” of a round or a “flat” round. Calling it an extension round is a way of portraying the investment as “more investors wanted in the round” rather than “we needed more investment but couldn’t command a higher valuation.” 
  • Down” round – This is a round where valuation declined from the last round. This one is tricky to position with media if you have disclosed valuation in the past. More on that later.  
  • “Debt” round – Instead of exchanging equity or shares in the business for investment dollars, a debt round is more traditional borrowing of cash with an agreed-upon interest rate. There are reasons why an executive team might opt for this vs. traditional investment, including reducing dilution of ownership.  
  • “Bridge Loan” – This is a temporary loan from existing investors that is in place until the company executives close an agreement with new investors. In this agreement, the money is a temporary loan and will be paid back (with interest) to the investors. This loan has no impact on the company’s valuation. 

Does it really matter? Funding is funding and reporters should love it, right?  

It’s not just the dollar amount that makes a great funding story. Reporters are looking for a real angle behind the investment, and you don’t want that angle to be your company is facing headwinds. Long gone are the days when small funding rounds are covered without an interesting backstory, so pre-pitch the news, know what reporters care about, tie to key investment trends (e.g. generative AI), and play angles such as prior successes of entrepreneurs. 

 If you’re working with reporters who cover these events frequently, know that they’re skilled in backing into the real business details that are behind the new investment. And they will ALWAYS ask about valuation, though you may not be required to disclose that to get coverage.  

In the following posts, I’ll walk you through ways to prepare for these different funding scenarios, and how we’ve seen them play out in the public eye.  

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