VCs are tapping into their network of investors to ofer extension rounds to portfolio
startups, per the WSJ.What happened: Amid a challenging fundraising landscape where startups are reluctant to
accept reduced valuations in down rounds, extension rounds emerge as a favorable
compromise. They enable startups to maintain their previous valuations and retain the
same investor base. Some extension rounds have a slight premium over the last round.
Since terms in the extension rounds are mostly unchanged, the administrative process is
much faster than traditional fundraising. Additionally, extension rounds often happen
without the standard fundraising pitches.
What the numbers say: Per Pitchbook, about 7,000 extension rounds have been
completed so far this year. In comparison, there were 8,699 extension rounds in 2022 and
8,539 in 2021.
Where to see the impact: Larger multi-stage investors have slowed down their investment
in the pre-seed stages. As a result, startups are turning to emerging fund managers, who
typically write smaller checks than larger institutional investors. These emerging fund
managers are more likely to collaborate with fellow investors to support portfolio startups.