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🚀 Navigating and Avoiding Down Rounds 🚀 In the third session of the Africa Venture Discussion series, Eloho Omame delivered an insightful presentation on navigating and preempting down rounds. Here are some of the key takeaways from the session: 🏆 Down rounds involve complex dynamics where incentives from different stakeholders can diverge. Understanding these incentives is crucial for securing the best outcome. 💬 Early, difficult conversations with founders are key to avoiding down rounds. Proactive planning from the outset mitigates the need for last-minute crisis management. ↔ Down rounds are multi-faceted in nature and incentives often conflict. Alternatives such as non-dilutive funding, cost-cutting measures, or structured flat rounds can offer viable solutions to counter this. However, discipline and long-term thinking should be fostered from the outset to avoid reaching the brink of a down round. ⚖ Early conversations are important in mitigating dilution concerns. Founders must balance the fear of dilution with the broader company's value, ensuring they don't reject beneficial rounds due to short-term worries. 🤝 Investors’ reluctance towards down rounds was also discussed and the need to emphasise trust and transparency to ensure alignment between investors and founders. 🔎 Comprehensive due diligence at the beginning of the investment is key to avoiding down rounds. 📈 VCs were cautioned against overvaluation and encouraged to act as advisers to avoid down rounds. 🧠 The psychological aspects of down rounds must be recognised and acknowledged to understand the motivations of different stakeholders to facilitate smooth resolution. In conclusion, navigating down rounds requires foresight, transparency, and a collaborative approach. By fostering trust, aligning incentives, and maintaining a long-term perspective, companies and investors can navigate these challenges with resilience and integrity. #StartupStrategy #VentureCapital #Entrepreneurship #InvestmentInsights

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External shocks, since 2022, play a role on down rounds, as did the FOMO, tourist investors, growth at all costs, etc, previous VC mantra … those with unit economics focus are more resilient to down rounds …

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