Workin' for the Cramdown

Two articles in the last few days about the woes of recently funded startups - the NYT today made this comment, quoting David Weiden of Khosla Ventures:

Businesses that were strong a year ago are still strong today, even if they depend on advertising, Mr. Weiden said. Facebook, for example, which depends on advertising for much of its revenue, might have a harder time selling ad space, and revenue will likely decrease, but it will still sell ads, he said. But the social network, which is rumored to be seeking funds, will have a harder time raising money.

“What’s changed more than the ability to make money from ads is the ability to raise money at the same valuation it had six months ago,” he said.

In other words, the next tranche of funding is going to be a cramdown round (where the existing staff, founders and investors get their shares "crammed down" into a little corner as new money comes in at far lower valuation. If the same funders put the dough in then its just the hard working staff and founders who get scraped. And this won't just be for Facebook - pretty much anyone who saw funding in the last 18 months or so is probably going to find this happening if they need more money (hence the Sequoia Doom Speech) - which of course will be great for morale!

Just as well there ain't noplace else to go......

The other was Nic Brisbourne on Facebook's volte face re allowing (and now not) some of its employees to cash in on the business. Unfortunately, Mr Zuckerberg still seems to be able to cash himself in. Apart from being wonderful for staff morale, the other risk is the "Miami Factor" - why do all this hard work with discontented people when Cash in Pocket + Miami in Sun = Babe in Hand & Booze in Cooler.....

It was a dotcom truism that it was time to head for the exits/hills when the CEO cashed in....will it repeat for 2.0 we wonder?

Update - more speculation on Facebook (de)valuation over here on Valleywag. $1.3bn anyone?

By the way, this post has gathered the most negative karma of any written in the last month or so - clearly a message people do not want to hear!