Managing Downrounds & Cap Tables

In the latest edition of Industry Voices, Jules Chasles, Partner at Dopamine and former Principal at Global Ventures, shares valuable observations on the MENA fundraising landscape, along with advice and strategies for founders navigating their fundraising journeys.

Jules’ Background

Jules Chasles is a seasoned venture capital professional with a career that spans private equity in Africa, seed-stage investments in Morocco, and a principal role at Global Ventures, a Dubai-based VC firm focused on growth-stage tech companies in the MENA region and other emerging markets. Over three years at Global Ventures, Jules played two key roles:

• Investment: Managing pre-Series A to Series B deals, including follow-on investments.

• Value Creation: Actively supporting portfolio companies by assisting founders with fundraising, strategic development, talent management, and more.

In August, Jules transitioned from Global Ventures to co-found Dopamine, where he leverages his extensive experience to help founders navigate the financing journey from pitch deck to deal close. With his deep expertise, Jules offers invaluable insights into the fundraising process, helpful for any aspiring entrepreneur.

What Investors Look For

When evaluating startups, Jules emphasizes three critical pillars:

• Market Size: The ability to generate substantial revenue and deliver strong returns is essential. Startups targeting small or niche markets often struggle to attract venture capital interest.

• Team: "With the right team, even a challenging market can be overcome. The region has a unique cultural context and environment, and investors are looking for founders that have previously demonstrated an ability to scale here, whether as an entrepreneur or part of a larger entity,” Jules explains.

• Problem-Solution Fit: Startups must tackle a significant, well-defined problem with a compelling solution. Jules stresses the importance of deeply understanding the core pain point and offering a solution that resonates to maximize chances of success.

Jules also highlights several red flags that can raise concerns for investors:

• Dilution Issues: "We pass on companies when founders don’t retain enough equity," he explains. Founders should aim to maintain 30-35% equity after a Series B. Falling below this threshold can signal a lack of alignment and long-term motivation, as the founders may not have sufficient ownership to drive the company forward. Jules considers dilution one of the biggest red flags, as it is often irreversible. 

• Overvaluation: While high valuations can be enticing for founders, they often create long-term challenges if not supported by solid traction. Overinflated valuations can lead to unrealistic expectations, making it harder for startups to meet their targets. This can result in down rounds if the startup fails to grow into its valuation, which not only hampers momentum but also deters investors from committing follow-on capital.

Managing Down Rounds and Cap Tables

Down rounds—raising capital at a lower valuation than in previous rounds—are becoming more common in today’s funding environment. While often perceived as setbacks, Jules reframes them as necessary recalibrations rather than catastrophes. “A down round isn’t the end; it’s a market adjustment,” he explains, noting that inflated valuations during market booms often correct as economic conditions shift. Jules advises founders to see down rounds as reset buttons. “It’s a chance to shed unnecessary baggage and emerge leaner and more focused,” he adds, noting that “using secondaries can be a good way to reduce valuations for investors, without going into a down round.”

Another critical element Jules emphasizes is maintaining a clean and manageable cap table, particularly when using instruments like convertible notes and SAFE notes. While these tools provide a quick and flexible way to raise early-stage capital, over-reliance on them can lead to complications: “You can easily lose track of what you own and go from 80% ownership to 20% once all the SAFE notes convert. These instruments can affect long-term ownership in a very negative way.” 

To avoid such pitfalls, he offers the following guidance:

• Limit Note Usage: Restrict the use of convertible and SAFE notes to one or two rounds before transitioning to equity financing. This prevents excessive complexity and unanticipated dilution.

• Clear Terms: Ensure consistent and transparent terms for notes to avoid creating friction among investors or complicating future funding rounds.

Jules highlights that investors look for startups where founders maintain meaningful ownership and where the company’s ownership structure supports, rather than hinders, future fundraising.

For deeper insights into Jules' thoughts on these topics, explore his Substack articles here. 

MENA’s Fundraising Ecosystem

MENA’s fundraising landscape offers distinct challenges compared to Europe and the US:

• The Seed-Stage Gap: The region faces a lack of diversified capital at the $500k ticket range, especially outside of the traditional tech-enabled investors. “With GCC being an important consumer market, it would benefit from more generalist players.” 

• Cross-Market Complexity: Individual countries in MENA represent smaller markets, and most startups must expand beyond their home markets to generate sufficient returns for investors. This expansion requires navigating cultural, regulatory, and logistical hurdles. In contrast, expanding from state to state in the US is relatively straightforward, and operating solely within the US can still lead to significant exits for investors.

A Final Word of Advice

Jules advises founders to pursue milestone-driven fundraising but acknowledges the value of seizing opportunities. “If you can raise on favorable terms before reaching your milestones, you should. But ensure your pitch highlights the risks you’re solving and the clear value proposition you’re bringing to the market”. Jules’ closing message to founders is clear: “Raising capital won’t solve gaps between what customers want and what your product delivers. If you start with the customer’s needs, everything else—product, sales, and funding—falls into place.”

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