Down rounds continue
There are numerous acrimonious situations at startups thanks to later rounds of financing which have given those investors complete control over companies, and instead of ensuring that they think of the company first rather than their limited partners, those VCs are now coming in conflict with earlier investors and founders according to this Wall Street Journal story (subscription required):
Indeed, at a time when many in the industry say the worst is behind them, the VentureOne study shows that, in 2002 and through the first four months of 2003, so-called down-rounds -- investments with harsh terms that lower the previous value placed on a company -- continued at a significant pace.
The VentureOne "Deal Terms Report" found that 42% of respondents saw their company's valuation decline in the most-recent financing from the prior round, on par with 41% reporting up-rounds. Companies raising a third or later financing were hit hardest, with over 50% experiencing a down-round. Those deals often came with onerous, preferential terms that gave the most-recent investors priority over earlier investors, or antidilution clauses guaranteeing investors a return of their capital at the expense of founders and employees.