Inside VC funding squeeze: DraftKings raises $100M through convertible notes paying 5% interest rate, DoorDash gives investors right to block an IPO
Rolfe Winkler / Wall Street Journal : Tweets: @scottthurm , @scottmaustin , @schlaf and @asanwal Tweets: Scott Thurm / @scottthurm : VC says startups are like Titanic after it hit iceberg: “No one wanted to jump into the lifeboats” http://on.wsj.com/1oQJNOs via @rolfewinkler Scott Austin / @scottmaustin : 73% of U.S. tech IPOs backed by VC since 2014 trade below IPO price http://www.wsj.com/... via @RolfeWinkler pic.twitter.com/JI61RV5eLk Steve Schlafman / @schlaf : Valuations of venture backed deals dropped 60% from Q3-Q4. Another drop is expected in Q1. http://www.wsj.com/... pic.twitter.com/TCT5O8xikO Anand Sanwal / @asanwal : “For Silicon Valley, the Hangover Begins” great piece @RolfeWinkler the dessert table and tricycles got to go http://www.wsj.com/...
Context & Ripple Effects
This piece lands mid-way through the unwind of the 2014–2015 unicorn boom. The WSJ's own data frames how far sentiment has fallen: 73% of U.S. tech IPOs backed by VC since 2014 trade below their offer price, and Steve Schlafman notes venture-backed deal valuations dropped 60% from Q3 to Q4 with another decline expected. A VC quoted in the coverage compares startups to the Titanic after the iceberg hit — 'no one wanted to jump into the lifeboats.'
Against that backdrop, DraftKings and DoorDash are case studies in what fundraising looks like when priced equity rounds stall: DraftKings takes $100M as convertible notes carrying a 5% interest rate, while DoorDash hands investors the right to block an IPO. The structural consequences were visible within a year, as early-stage VC rounds worldwide collapsed from roughly 13.3K in 2014 to under 6K by 2017.
First-order effects
- DraftKings gets its $100M but on debt-like terms — a 5% coupon converts the raise into a liability with a clock on it rather than permanent equity capital.
- DoorDash's investors now hold a contractual veto over going public, trading fresh capital for direct control over the company's exit timing.
Second-order effects
- Founders facing the same math — weak public comps, falling valuations — increasingly accept structured terms (converts, blocking rights) instead of marking prices down, which shifts bargaining power toward late-stage check-writers.
- Capital retreats up the stack: as the [[a:938468|2018 fundraising wave showed, most new VC money flowed into large growth rounds functioning as private IPOs]], starving the early stage that had already contracted sharply.
Third-order effects
- If the pattern holds, private companies stay private longer under investor-controlled structures, decoupling startup liquidity from the public IPO window — a gap that resurfaces whenever public tech stumbles, as it did again when [[a:975607|venture firms cut back investments and renegotiated funding deals amid poor post-IPO performance in 2022]].
- Term sheets become risk-transfer instruments: interest rates, liquidation preferences, and exit vetoes let investors cap downside while founders absorb valuation uncertainty, hardening into standard practice across successive downturns.
The trend: Venture financing cycles between priced-equity booms and structured-instrument squeezes, with each downturn shifting more control over exits and downside protection from founders to late-stage investors.