Extension rounds help some startups play offense during COVID-19

The venture capital world is constantly changing, and its evolution can sometimes flip pieces of conventional wisdom on their heads. For example, a recent flurry of extension rounds from Silicon Valley’s hottest startups

like Stripe

and Robinhood

seem to signal that the investment type has suddenly become cool.

Extensions evolving from unloved to hot is not the first time that a type of VC deal has gained, or lost luster. In past times, for example, raising consecutive rounds from the same lead investor was often perceived as a negative signal; why couldn’t the startup find a new, different lead investor? Today, in contrast, venture capitalists are using inside rounds to double-down on winning startups, a way of helping ensure returns for their own backers.

The recent phenomenon of extensions becoming vogue is a tale of the times, in which the best startups get to play offense, and startups that can’t show accelerating growth are left behind. Let’s explore what has changed.

A series of fortunate extensions

TechCrunch first wrote about

the new extension-round trend

after seeing what felt like a wave of the deals crop up. Some were large, like MariaDB’s huge $25 million add-on to its Series C

, or Robinhood’s biblical $320 million addition

to its Series F.

But most were smaller events like

Sayari

adding $2.5 million to its Series B

, or CALA

adding $3 million to its seed

round. Even more recently, Eterneva

raised another $3 million

on top of its seed round, and also out this week was a million pounds more for Edinburgh-based Machine Labs

’ seed round.

One reason for the growth of extension rounds in 2020 has been

runway

— making sure that a startup has enough. Upstarts often raise on an 18-month cadence. But because of COVID-19 and its constituent economic disruptions, many have reduced costs in a bid to bolster how long they have until their cash stores reach zero.