Newbie question: what's preventing the downround? SB's (and other investors') terms ("others shouldn't pay less to get more!") or founder ego ("I'm not a successful unicorn shepherd if we take a downround"), or something else?
The big problem with a down round is existing investors generally have protection against their shares being diluted, so the non-prefered holders get completely hosed since their shares have to get diluted even more to make up for the fact that some shares won't get diluted at all.
Guess who the guys who gets hosed are? Founders and employees of the company who have options. Suddenly you and your co-workers have almost worthless shares in a company that isn't doing well. If you're at the start up for the potential upside it's at that point you really need to look at moving on. So suddenly a down-round isn't just a down-round it's also a "lose all the good employees" round.
A downround wrecks the cap table. Earlier investors and employees get diluted like crazy. So now your investors hate you and your employees are pissed. The options of recently hired employees go underwater - so they start getting poached. It wreaks havoc on a company and should really be avoided at all costs.
