The Strategic Power of the Down Round: Why Lower Valuations Can Save (and Strengthen) Your Company
- NP Capital Advisors Team
- Nov 12
- 8 min read
Contact us at info@npcapitaladvisors.com
Newsletter Summary:
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REMINDER: Small Business Essentials Podcast 1, Out-of-Court Restructuring As a Tool to Improve Cash Flow Dynamics, Lower Debt, and Improve Shareholder Equity
Our first interactive podcast is coming up on Tuesday, November 18th from 2-2:30 PM EST; 11-11:30 AM PST.
We'll be covering the five critical steps we use in real-world restructurings/turnarounds to support founders.
Please register with the following link to join us or receive the recording: https://us06web.zoom.us/webinar/register/WN_yUAk425lQMm3WrY99ojMAA.
Looking forward to seeing you there!
The Strategic Power of the Down Round: Why Lower Valuations Can Save (and Strengthen) Your Company
More founders are going to face down rounds over the next 12-18 months, especially in capital-intensive verticals. Founders might see this as a signal of weakness or embarrassment, but that framing is outdated.
In today’s market, down rounds are often the strategically smart move for small business owners who need capital to survive, reset, and scale responsibly.
As NP Capital Advisors’ Founding Partner, Nick Desai, notes, “a down round can actually reset expectations, allow founders to buy back more ownership, and ultimately give the business a second shot at growth from a more realistic base.”
Why Down Rounds Happen
A down round doesn’t necessarily mean the business is broken. Often, it means the valuation the business previously raised at was simply inflated relative to traction, growth speed, or current market cost of capital.
This is especially common if the business raised capital during the pre-COVID and low-interest rate era, a period where valuations became disconnected from realistic comparables and exit values.
A down round is a private market version of “mark to market.” Public companies are forced to reflect the current market constantly, but private companies can avoid this until they need to raise, which can lead to denial, stalled fundraising, and death by runway exhaustion. A down round resets expectations to reality.
Benefits Most Founders Miss
Rational valuation resets open the door to serious operators – strategic investors, turnaround capital, former operators, etc. – who help you build the business, not just talk about it. Resetting valuation can also rebalance who actually benefits in future exits; a down round can allow founders to buy back more of their own company if earlier investors choose not to participate.
How to Structure a Down Round in the Right Way
Offer pro-rata participation to all existing investors. This is the #1 rule to maintain trust. If everyone has the option to maintain their ownership, dilution is voluntary, not punitive. If current investors participate in equal proportion, no one is diluted unfairly.
After that, make it pay-to-play. New money will be at a significant premium. You want the new round to aggressively favor new money in order to provide enough incentive in a challenging fundraising environment.
Demonstrate personal skin in the game. Founders need to show that they are accepting pain alongside their investors. This could be in the form of putting in their own capital to demonstrate commitment, or accepting compensation in the form of equity.
Case Study: PeaTos
PeaTos, the plant-based healthy snack brand, executed a down round as it continued scaling. The valuation reset didn’t kill the deal pipeline; it actually allowed them to continue fundraising, bring in new strategic capital, and continue expansion. PeaTos is real-world proof that a down round can be the mechanism that keeps a business alive, fundable, and acquirable.
The Founder Mindset Shift
Down rounds may feel like defeat, but they might actually be your greatest opportunity. When done right, they are strategic resets that protect ownership and unlock aligned capital.
NP Capital Advisors helps founders structure down rounds intelligently, negotiate terms, preserve equity value, and secure long-term partners so businesses can survive the dip and are positioned to win the next cycle.
DeVita & Hancock Hospitality x NP Capital Advisors Partnership Announcement
Through NP Capital’s deep expertise in M&A, restructuring, growth strategy, and CFO advisory, DeVita can now introduce clients to world-class investment partners who help them raise capital, optimize operations, and position their hospitality brands for long-term success.
At the same time, DeVita & Hancock Hospitality will continue doing what they do best: recruiting, vetting, and hiring top-tier hospitality talent that drives revenue, strengthens culture, and fuels expansion. Unlike big-box recruiting firms, DeVita offers hands-on, relationship-driven search partnerships tailored to each brand’s DNA, not a cookie-cutter placement process.
Together, NP Capital Advisors and DeVita & Hancock Hospitality are delivering a holistic solution, from financial strategy to human capital, designed to help hospitality brands scale smarter and grow stronger.
Deal Highlights
NP Capital is advising a premium better-for-you snack brand on a sell-side and restructuring engagement. The process aligns with the brand’s mission to deliver high-protein, clean-label meat snacks through innovation and accessible formats. NP is assisting the client with the following:
Renegotiating vendor payables
Renegotiating liabilities
Maximizing valuation for their sale
What's In A Name: The NP Capital Origin Story
Most people assume “NP” is a traditional firm acronym that stands for something formal, institutional, or corporate. It actually stands for something much simpler: “No Problem.”
Because in the moments founders call us… it usually doesn’t feel like “no problem.”
It feels like existential pressure.
It feels like the clock is running out.
It feels like the business is one wrong step away from collapse.
And the capital markets aren’t always helpful.
Investors can get skittish.
Banks tighten up.
Advisors hedge and try to protect their own reputations.
But NP Capital Advisors was built on the exact opposite reflex.
We step directly into the tension.
We believe there is always a lever.
Always a strategic angle.
Always a path to restructure, reposition, extend runway, or create optionality, even when most people think the door is closed.
Founders deserve a partner who keeps a cool head when the stakes are high. They need a partner who can look at a brutal situation and say: “This is solvable.”
That’s the DNA. And that’s why NP stands for No Problem.
Because founders shouldn’t have to navigate the hardest moments alone.
Industry Headlines
Tylenol, Kleenex, Band-Aid, and More Put Under One Roof in $48.7 Billion Consumer Brands Deal
Kimberly-Clark is buying Tylenol maker Kenvue in a cash and stock deal worth about $48.7 billion, creating a massive consumer health goods company.
Shareholders of Kimberly-Clark will own about 54% of the combined company. Kenvue shareholders will own about 46% in what is one of the largest corporate takeovers this year. The deal must still be approved by the shareholders of both companies.
The combined company will have a huge stable of household brands under one roof, putting Kenvue’s Listerine mouthwash and Band-Aid side-by-side with Kimberly-Clark’s Cottonelle toilet paper, Huggies, and Kleenex tissues. It will also generate about $32 billion in annual revenue.
Kraft Heinz Split Leaves More Questions Unanswered than Resolved
Kraft Heinz has announced a split into two independent companies – one focused on global shelf-stable brands and the other on North American grocery – but the separation appears more logistical than strategic, leaving investors questioning its value.
The draft divisions (“Global Taste Elevation” for the global unit, “North American Grocery” for the domestic unit) divide up brands in ways that don’t cleanly separate winners and laggards. For example, strong brands like Kraft Mac & Cheese and Kraft Singles are split across different entities, which undermines the rationale for unlocking value by disentangling high-growth from low-growth units.
Investors responded with caution and a share-price decline, in part because the expected benefits (e.g., attractive “pure-play” valuations or M&A opportunities) remain unclear and the split will bring an estimated US$300 million in “dis-synergies” (aka extra annual costs), raising doubts that the move will materially fix the underlying issues.
First Brands Wins Access to Last $600 Million of Emergency Funds
First Brands Group won access to $600 million of remaining bankruptcy financing, which company lawyers said was needed to prevent the company from immediately shutting down.
The funding represents the rest of the $1.1 billion financing offered by a group of company lenders and comes at a cost, including a roll-up of $3.3 billion in existing obligations.
First Brands lawyers warned that without the money, the auto-parts supplier risked shutting down and liquidating, and the company reached a series of agreements to delay potential legal fights over invoices and other collateral.
Kering and L’Oréal Forge an Alliance in Beauty and Wellness
Kering and L’Oréal announced today that they are entering a long-term strategic partnership in luxury beauty and wellness.
This binding agreement encompasses the acquisition of the House of Creed by
L’Oréal, the beauty and fragrance licenses of iconic Houses of Kering and an exclusive venture to explore business opportunities in the field of wellness and longevity.
The partnership includes the rights to enter into a 50-year exclusive license for the creation, development, and distribution of fragrance and beauty products for Gucci, commencing after expiration of the current license with Coty, and respecting the Kering group’s obligations as per the existing license agreement.
Bloomin’ Brands Going Back to Basics at Outback Steakhouse
Bloomin’ Brands plans to invest $75 million over three years to simplify menus, remodel Outback Steakhouse locations, and enhance marketing.
The company reported a third-quarter loss of $45.9 million, or 54 cents a share, with revenue increasing 2.1% to $928.8 million.
Bloomin’ Brands forecasts current quarter same-restaurant sales to increase 0.5% to 1.5% and full-year sales to be flat to up 0.5%.
Monster Up as Global Appetite for Energy Drinks Lifts Sales
Monster Beverage Corp. shares gained after third-quarter results topped expectations, helped by strong global demand for its expanding portfolio of energy drinks.
Net sales to customers outside the US reached a record high rate, Schlosberg said, accounting for about 43% of total net sales, up from roughly 40% a year earlier.
The latest results underscore how the broader energy-drink industry is benefitting from coffee drinkers ditching cold brews for “better-for-you” caffeine and are eyeing overseas markets where consumption remains below soft drinks.
About NP Capital Advisors
NP Capital Advisors is a next-generation investment bank and consulting firm founded by a team of experienced entrepreneurs, bankers, and attorneys who have built, operated, and sold successful businesses. The firm offers tailored solutions across M&A, restructuring and turnarounds, and strategy and growth consulting in a variety of sectors. With a performance-driven fee structure and a track record of delivering exceptional results, NP Capital Advisors is dedicated to helping founder-led and emerging growth businesses maximize value and overcome challenges.
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