What You Should Know About Funding
Before Starting A Startup.
US Startups and Funding
In between an idea and a startup, come several stages of funding and valuations and after each of these, the equity is divided. The end comes either as a success with Initial Public Offering, or as an Acquisition or even Bankruptcy.Scroll down to learn everything about these stages
The Beginning
The Idea and the Founders
It all begins with the idea. The founder has an idea that he wants to work on. A co-founder could also join at this time.Investment
At this stage the founders may ask Family and Friends for investments.Equity Pie
The equity is divided between the founders and the family and friends.Entrepreneurs are Back !
The rate of new Entrepreneurs measures the percentage of the U.S. adult population that became entrepreneurs, on average, in a given year. Notice that after a tremendous decrease post recession, the rate has fortunately taken an upward turn in 2014.(Data taken from the Kauffman Foundation)
Seed Stage
Angel Investments
This is the first stage of raising outside investments. Angel investors are a group of individuals who invest into the company in exchange for equity. These investors focus on helping the business succeed.Equity Pie
The equity is again shared with the new angel investors.Angel Investments
Total Investments in Billion Dollars
The total investment by Angel Investors ranges between 16-30 Billion Dollars with a range of 200,000 USD to 1M USD per company.Total Ventures receiving funds and Active Investors
A good point to note as a young entrepreneur is that the percentage of ventures receiving funds from angel investors to the total ventures applying for funding, has been increasing since 2001. A probable reason might be the increase in the number of active investors.Data compiled from the Center for Venture Research annual reports
Angel Investments by Sectors
Data published by Center for Venture Research suggests that the Software industry has consistently attracted a significant fraction of angel investments, followed closely by the Healthcare industry(Quandl.com)Angel Exits and Returns
Depending on the initial success there are three outcomes at this stage:Success in attracting Venture Capitals
Mergers and Acquisitions
These represent "A Good Exit". As clear from the graph, in recent years acquisitions of small companies by larger organizations have gained momentum. If unsuccessful in attracting Venture capitals, this option is far better than Bankruptcy.Bankruptcy
This represents "A Bad Exit". Notice the almost opposite graphs for Acquisitions and Bankruptcies. This indicates that more the number of acquisitions, the fewer the bankruptcies of small companies.Venture Capitals
Venture capitals are firms specialized in investing in high potential startup companies. VC firms are comprised of people who invest into the VC fund, known as the limited partners, and those who invest the fund's money in startup companies, known as the venture capitalists or general partners.Venture Capitals Investments by Sectors
Data published by the Center for Venture Research suggest that the software industry has consistently attracted a significant fraction of Venture capitalists,along with a recent upsurge in Biotechnology industry.(Quandl.com)Venture Capital Investment Stages
Apart from the Seed stage, the VC stages can be divided into:Early Stage
Early stage is the first round in the VC stage also called Series A round. Generally this stage raises between $3M-$5M in exchange for 20% of the company.Expansion Stage
Very few and successful companies make this far! At this stage you are expanding by attracting more capital. Notice that the VC investment is highest for this stage.Mezzanine or Later Stage
The last stage before public offering.Venture Capital Exits
If a company hasn't achieved enough success to sell the stocks in public, then this means failure for Venture Capital InvestorsInitial Public Offering
Congratulations! You made it !
An IPO is the stage where your company is said to be established and for the first time you sell your shares to public to raise funds.Thank You
References
Venture Capital Exists
Venture capitals are firms specialized in investing in high potential startup companies. Venture capitals are firms specialized in investing in high potential startup companies. VC firms are comprised of people who invest into the VC fund, known as the limited partners, and those who invest the fund's money in startup companies, known as the venture capitalists or general partners.Venture Capital Exits
Venture capitals are firms specialized in investing in high potential startup companies. Venture capitals are firms specialized in investing in high potential startup companies. VC firms are comprised of people who invest into the VC fund, known as the limited partners, and those who invest the fund's money in startup companies, known as the venture capitalists or general partners.
Venture capitals |
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Seed or Angel Financing |
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Family and Friends Funding |
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Self-Funding Stage |
