London Daily

Focus on the big picture.
Saturday, Dec 06, 2025

For Silicon Valley Startups, The Worst Is Yet To Come

For Silicon Valley Startups, The Worst Is Yet To Come

As the market downturn drags on and investor cash remains hard to come by, more startups will start to run out of money, experts say.
The startup world has had a tough year - plagued by mass layoffs, plummeting venture capital investment and the chaotic collapse of Silicon Valley Bank. But many in tech believe that the worst is yet to come.

As the market downturn drags on and investor cash remains hard to come by, more startups will start to run out of money, experts say. Some venture-backed companies will be forced to raise new funding even if it means agreeing to a lower valuation than they once secured, a deal called a down round, dreaded by founders and investors alike.

"We haven't had a compression in values like this in more than 20 years. It's an absolute bloodbath," said Cameron Lester, global co-head of technology media and telecom investment banking at Jefferies, adding that companies that are able to raise money, even at a lower valuation, are the lucky ones. "What matters is you're a survivor," Lester said.

Toward the end of 2022, down rounds hit near five-year highs, according to research firm Prequin. And early data for the first quarter shows roughly 7.5% of all venture funding rounds in US were down rounds, according to PitchBook - a number it expects will climb. High-profile companies like financial giant Stripe Inc., Swedish payments startupKlarna Bank AB and security firm Snyk have already taken valuation cuts, and others like Blockchain.com are said to be in talks to do the same.

Founders assiduously avoid down rounds because they signal that a company's to-the-moon trajectory has been derailed, battering morale and wiping out millions, and sometimes billions, of paper wealth for startup founders and employees. They also represent a loss for venture capitalists and their investors, called limited partners, and can result in legal headaches.

Yet ask most tech industry professionals and they will grimly confirm that such deals are becoming inevitable. "We expect down rounds, especially toward the second half of this year, to really pick up," said PitchBook analyst Kyle Stanford. The coming wave of lower valuations, is "common knowledge," said Alfredo Silva, a partner at law firm Morrison & Foerster. In March, the firm held a workshop on how to navigate the legal complexities that can come along with such rounds.

While many companies have cut costs and taken on debt to avoid raising money on unfavorable terms, those delay tactics have limits. More than 400 companies - one-third of all unicorn startups, those valued at $1 billion or more - haven't raised new funding since 2021 according to PitchBook. That's a long time for a company that isn't yet turning a profit, coasting on the cash they brought in from previous funding rounds. Most venture backed companies usually raise every year or two, and about 94% of tech unicorns are unprofitable according to PitchBook.

"Some of these companies remind me of Scottish nobility that haven't raised money in seven generations," said Mathias Schilling, co-founder of venture firm Headline. "They sit and drink champagne while it rains through the roof."

Schilling's advice: "Get real, take the down round."

Some major startups are already taking the hit. Stripe completed a financing deal valuing it at $50 billion, or about half its 2021 valuation. Several crypto startups have taken or are taking down rounds, as are multiple companies overseas, including Klarna, which saw its value fall more than 85%. Earlier this month, workout startup Tonal Systems Inc. raised money from a private equity firm at a reported $550 million price tag, or one-third of its valuation in 2021.

But as more startups are learning, a down round is better than no funding round. Venture investing in all startups has declined precipitously in recent months. The number of startups that raised money in the first quarter of 2023 hit its lowest level in five years - a pace that falls far short of demand. An PitchBook internal estimate shows that for every $3 that startups need, just $1 is being deployed.

"We're actually in one of the worst times in recent memory in venture activity," said Avlok Kohli, chief executive officer of AngelList, which offers fundraising and management tools to startups, investors and fund managers. "It's the lowest activity we've seen and the lowest positive activity we've seen."

Driven by battered valuations for publicly traded tech companies, mature startups preparing for an initial public offering were impacted first. Younger startups, still years from public debut, were initially spared. But Mr Kohli said that's changed in recent months, with the pain trickling down to early companies as well, because no one want to write a check that's "a bridge to nowhere."

Investors are becoming more skeptical and driving harder bargains for every startup. That's true even in the buzzy space of artificial intelligence - a rare bright spot in the venture investing landscape which has been flooded with talent and cash to create new companies.

"Is it overheated? Could there be a bubble? Sure," said Mr Kohli, who's optimistic about the sector. But he noted that great expectations are a key facet of the world of tech, even though the risks are always high.

"Statistically as a startup, you won't make it," Mr Kohli said. "That's just math."
Newsletter

Related Articles

0:00
0:00
Close
UK data-regulator demands urgent clarity on racial bias in police facial-recognition systems
Labour Uses Biscuits to Explain UK Debt — MPs Lean Into Social Media to Reach New Audiences
German President Lays Wreath at Coventry as UK-Germany Reaffirm Unity Against Russia’s Threat
UK Inquiry Finds Putin ‘Morally Responsible’ for 2018 Novichok Death — London Imposes Broad Sanctions on GRU
India backs down on plan to mandate government “Sanchar Saathi” app on all smartphones
King Charles Welcomes German President Steinmeier to UK in First State Visit by Berlin in 27 Years
UK Plans Major Cutback to Jury Trials as Crown Court Backlog Nears 80,000
UK Government to Significantly Limit Jury Trials in England and Wales
U.S. and U.K. Seal Drug-Pricing Deal: Britain Agrees to Pay More, U.S. Lifts Tariffs
UK Postpones Decision Yet Again on China’s Proposed Mega-Embassy in London
Head of UK Budget Watchdog Resigns After Premature Leak of Reeves’ Budget Report
Car-sharing giant Zipcar to exit UK market by end of 2025
Reports of Widespread Drone Deployment Raise Privacy and Security Questions in the UK
UK Signals Security Concerns Over China While Pursuing Stronger Trade Links
Google warns of AI “irrationality” just as Gemini 3 launch rattles markets
Top Consultancies Freeze Starting Salaries as AI Threatens ‘Pyramid’ Model
Macron Says Washington Pressuring EU to Delay Enforcement of Digital-Regulation Probes Against Meta, TikTok and X
UK’s DragonFire Laser Downs High-Speed Drones as £316m Deal Speeds Naval Deployment
UK Chancellor Rejects Claims She Misled Public on Fiscal Outlook Ahead of Budget
Starmer Defends Autumn Budget as Finance Chief Faces Accusations of Misleading Public Finances
EU Firms Struggle with 3,000-Hour Paperwork Load — While Automakers Fear De Facto 2030 Petrol Car Ban
White House launches ‘Hall of Shame’ site to publicly condemn media outlets for alleged bias
UK Budget’s New EV Mileage Tax Undercuts Case for Plug-In Hybrids
UK Government Launches National Inquiry into ‘Grooming Gangs’ After US Warning and Rising Public Outcry
Taylor Swift Extends U.K. Chart Reign as ‘The Fate of Ophelia’ Hits Six Weeks at No. 1
250 Still Missing in the Massive Fire, 94 Killed. One Day After the Disaster: Survivor Rescued on the 16th Floor
Trump: National Guard Soldier Who Was Shot in Washington Has Died; Second Soldier Fighting for His Life
UK Chancellor Reeves Defends Tax Rises as Essential to Reduce Child Poverty and Stabilise Public Finances
No Evidence Found for Claim That UK Schools Are Shifting to Teaching American English
European Powers Urge Israel to Halt West Bank Settler Violence Amid Surge in Attacks
"I Would Have Given Her a Kidney": She Lent Bezos’s Ex-Wife $1,000 — and Received Millions in Return
European States Approve First-ever Military-Grade Surveillance Network via ESA
UK to Slash Key Pension Tax Perk, Targeting High Earners Under New Budget
UK Government Announces £150 Annual Cut to Household Energy Bills Through Levy Reforms
UK Court Hears Challenge to Ban on Palestine Action as Critics Decry Heavy-Handed Measures
Investors Rush Into UK Gilts and Sterling After Budget Eases Fiscal Concerns
UK to Raise Online Betting Taxes by £1.1 Billion Under New Budget — Firms Warn of Fallout
Lamine Yamal? The ‘Heir to Messi’ Lost to Barcelona — and the Kingdom Is in a Frenzy
Warner Music Group Drops Suit Against Suno, Launches Licensed AI-Music Deal
HP to Cut up to 6,000 Jobs Globally as It Ramps Up AI Integration
MediaWorld Sold iPad Air for €15 — Then Asked Customers to Return Them or Pay More
UK Prime Minister Sir Keir Starmer Promises ‘Full-Time’ Education for All Children as School Attendance Slips
UK Extends Sugar Tax to Sweetened Milkshakes and Lattes in 2028 Health Push
UK Government Backs £49 Billion Plan for Heathrow Third Runway and Expansion
UK Gambling Firms Report £1bn Surge in Annual Profits as Pressure Mounts for Higher Betting Taxes
UK Shares Advance Ahead of Budget as Financials and Consumer Staples Lead Gains
Domino’s UK CEO Andrew Rennie Steps Down Amid Strategic Reset
UK Economy Stalls as Reeves Faces First Budget Test
UK Economy’s Weak Start Adds Pressure on Prime Minister Starmer
UK Government Acknowledges Billionaire Exodus Amid Tax Rise Concerns
×