It’s not just the market — sometimes the warning signs are internal

If you’re raising a new round and getting lower valuations than last time — or struggling to raise at all — it’s tempting to blame the market.

And yes, macro conditions matter. But investors rarely walk away based on sentiment alone. What really spooks them? The numbers. Or more specifically, the signals your financials are sending — whether you realise it or not.

Let’s talk about how to spot those red flags early, and how to fix them before they push you into a downround.

First, what actually triggers a downround?

A downround happens when you raise at a lower valuation than your previous round. It’s not the end of the world — but it’s painful. It dilutes existing shareholders, can impact morale, and raises questions about momentum.

It’s more common in tougher markets. But many downrounds are triggered by internal metrics not matching the narrative — or worse, showing signs of decline.

Here’s what investors look at that can quietly undermine your next valuation.

Signal 1: Flat or declining net revenue retention (NRR)

If you’re in SaaS or a recurring revenue model, NRR is a key signal of product value and long-term viability. Investors want to see:

• Customers sticking around
• Existing revenue expanding
• Churn staying low

If your NRR is dropping below 100% — or worse, trending down quarter by quarter — it’s a warning sign that growth is being propped up by new customer acquisition, not product strength.

Healthy NRR shows you’re building on a solid base. Weak NRR says you’re leaking value.

Signal 2: CAC payback creeping up

Investors know that scaling comes with costs. But they still want to see how long it takes you to recoup what you spend acquiring a customer.

If your CAC payback period is:

• Over 12 months in SaaS
• Increasing every quarter
• Built on assumptions instead of real data

…you’re in risky territory. Especially if your LTV doesn’t justify the spend.

It suggests your model isn’t as efficient as it needs to be — and you’ll need more cash to scale, which pressures your valuation.

Signal 3: Revenue growth without margin growth

It’s one thing to grow fast. It’s another to grow efficiently.

If your top-line revenue is increasing, but:

• Gross margin is flat or declining
• Operating costs are rising faster than revenue
• Burn rate is growing out of proportion

Then your numbers may tell investors you’re buying growth at any cost — which isn’t sustainable.

Healthy growth shows a path to profitability, not just bigger numbers.

Signal 4: Weak forecast discipline

One of the fastest ways to spook investors is to present a forecast that:

• Changes significantly each quarter
• Is way off from actuals with no clear explanation
• Can’t be defended confidently when challenged

It sends a message that you’re flying blind — or worse, being overly optimistic without a plan to course-correct.

If you want to raise at a strong valuation, your forecast needs to be credible, flexible, and well understood by the whole leadership team.

Signal 5: No clear story behind cash flow

Cash in the bank is great. But what matters more is how long it lasts — and how you’re using it.

If your burn multiple is high (i.e. how much you burn to generate each £1 of new revenue), or if your cash runway doesn’t align with your raise timeline, it raises alarm bells.

You want to show:

• Clear cash flow visibility
• A plan for how this next round gets you to the next value milestone
• Smart capital allocation, not reactive spending

Investors know cash flow isn’t perfect — but they want to see founders who are on top of it.

Signal 6: Metrics don’t match the story

This is the big one. You can have strong revenue, a great team, and growing awareness — but if your key metrics don’t line up with the story you’re telling in the pitch deck, trust erodes.

For example:

• You say churn is improving, but NRR is flat
• You say sales are ramping, but CAC is rising
• You say product-market fit is strong, but LTV is low

Investors want to believe your story. But if the numbers don’t support it — or worse, contradict it — they’ll either lower their valuation or walk.

What founders can do to stay ahead

Downrounds aren’t always avoidable. But they’re much less likely if you:

• Know your key financial signals and track them monthly
• Build a model that’s rooted in actuals, not just ambition
• Tackle margin and retention early, not just revenue
• Prepare to talk confidently about your metrics — the good, the bad, and the plan

It’s not about being perfect. It’s about being credible, coachable, and data-aware.

Strong numbers don’t just avoid downrounds — they fuel better terms

When you understand what investors are looking for (and what scares them), you get ahead of the curve. You stop fundraising reactively, and start building leverage.

You don’t just raise — you raise on your terms.