Carta released their state of the market report. A few data points stood out to me

Downrounds constitute 20% of all rounds, up 2x from historical norms. Bridge rounds account for 38% of all rounds in Q2. Cooley reported 2.9% of rounds recapitalized the company. Recaps effectively delete the previous cap table & start a new one.

These are all signs of the harder fundraising times.

The glass-half full view is that 80% of all rounds are flat or up.

Time between rounds has jumped about 40%. Curiously, this is roughly consistent with the lengthening in sales cycles software companies are enduring with customers. Perhaps there’s a parallel in buyer psychology in software & in venture capital.

Seed valuations remained relatively constant. Analyzing the data for yesterday’s post, I noticed the seed market weathered through the global financial crisis relatively unscathed, a parallel to today - both about a 15% drop in pre-money valuations.

Last, employees have exercised options at the lowest rate since the dawn of Covid at 26%, down from 46% two years ago.

In the public markets, executive share selling patterns can be important signals for investors. If employees buy more shares, they believe in the company. There’s a parallel for employee option exercise.

I wonder if later-stage investors will begin to use employee exercise rate as an input to their diligence for this reason - especially during this next transition period where the capital markets plateau & renormalize.

The greater the employee confidence in a business, the more compelled an investor could be to lead a round.