Sequoia Capital has stopped funding the app to track the security situation.
Sequoia was one of the first and largest sponsors of Citizen, a mobile application for assessing the overall degree of security in a user’s location. In 2017, the company won a $12 million Series A round. The firm then appointed Mike Vernal as a member of its board of directors.
Earlier this month, Michael Vernal resigned. This decision was made after Citizen’s management approached venture investors with a proposal to conclude a deal providing for a commitment to participate in a new round of fundraising. In addition, this proposal contains the risk of dilution of equity interests.
Citizen managed to raise the necessary funds from other sponsors. According to insiders, representatives of the startup in the course of interpersonal communication, about which nothing is known in the public space, call Sequoia’s decision ruthless and perceive it as an actual rejection of the company.
Venture investors say that such limited rounds of financing, when a company is forced to give preference to new sources of cash receipts, have become more common amid the decline in the cost of technology in the private market.
It is becoming increasingly difficult for companies with venture capital (VC) to raise funds. According to the results of the fourth quarter of last year, the volume of financing decreased to the lowest values in the last nine years. The reasons for this state of affairs are two factors, including a decrease in the number of sellers entering the market as a result of an initial public offering (IPO), and a drop in the value of shares due to rising interest rates and inflation.
Rob Moffat, a partner at the British venture capital firm Balderton Capital, is convinced that the perception of profitability as the main criterion of business activity is not always the right strategy. He noted that some companies can guarantee income at the initial stage of their existence, while other firms make a profit only after a certain period.
Rob Moffat believes that companies that do not bring instant income should not be denied financing if they meet such indicators as high gross profit, sufficient funds to repay sales costs during the year, and strong customer retention. He defines this compliance with the criteria as positive prospects that will be realized after a certain period.
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