I caught up with a venture investor and talked about a deal that’s frustrating him. He loves the founder, team, and solution. He’s been working to structure an investment that works for his fund and the company. The company raised over $10 million in venture capital eighteen months ago. That fundraising round was large by historical norms, as was the valuation, considering the early stage of the company. But that was the market at the time, and the founders took the deal. They’ve executed but haven’t made enough traction to warrant an increase in their valuation. Given the current market, this investor believes they’re likely worth the same as, or even less than, they were eighteen months ago.

This investor is walking away from the deal. Why? Given the company’s traction and the fund’s target portfolio construction, the investment would need to happen at a valuation that’s materially below the valuation at the last fundraising round. The founder isn’t open to doing a down round.

High valuations feel great to founders when the deal is done, but founders should be aware that they can come back to bite you. If you received investment at a high valuation, executing flawlessly and realizing material traction is likely your best bet to avoid a down round.