Startup Capital
Categories: Banking
See: A Round Financing. See: Seed Capital. See: Seed Fund.
The initial investment dough for young companies with a dream and a vision and a suite of hope for a brighter future. The startup capital usually hopes to get a company to the point where they have their first meaningful revenues...like, a million bucks or so. It then hopes to push them to an A Round with professional venture capital investors, where injections of maybe $5-8 million in capital come in, along with the formation of a real board of directors and other elements that all coalesce, trying to make the company...meaningful.
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Finance: How Do You Get Your Startup Fun...96 Views
Finance a la Shmoop. How do you get your startup funded? If you're leaning is in
this direction, well then first you pray. Can't hurt right? Okay well maybe it can,[two men in church]
shocking. Well the world of startups is really a tale of two cities or types of
business. There's tech startups and then there are
non tech startups. The former is lavishly funded with tremendous resources and
huge valuations. Which means that the capital invested is almost free for the
founders and there are literally thousands of companies around the world
who invest in early technology startups.[Global map with business buildings] But if you're trying to fund a
restaurant, a bar, flower-arranging chain, a bug spraying service and auto service
business. Well then you're probably badly out of luck. If you do get financing,
it'll be on vastly worse terms than if you would have invented a new robot operating
system that could see in the dark, or an electronic zit zapper, or a drug that
made you happy you knew it and you didn't even have to clap your hands. [T-Rex clapping hands]
Since the restaurant industry for example is such a bad investment with
some 95% plus of them going bankrupt in the first few years.
Very few investors are willing to take any risk investing in them. As a result
if you want to fund that kind of business, well you most likely have to
fund it yourself by saving your pennies, waiting for old uncle Larry to kick the
bucket and leave you money and/or mortgage whatever you can of your house [man at Chase Bank]
at the bank. Knowing that if your restaurant goes belly-up, you rethink
your five-year-old SUV in terms of living room, kitchen here and bathroom
there. Well if you do have the knack for tech, well and you come up with the lawn
Roomba which will make mowing the lawn a breeze. Then the process usually begins
with a business plan. You'll leverage Google slides, a free presentation tool,
where you can have one page describing your product, a page covering the size of[business slides]
the market, ie the number of potential buyers, anyone with a backyard basically,
along with the price you'd expect them to pay. Another page covering the costs
of making the first one, the first hundred, the first thousand, the first
hundred thousand units. Were presumably the marginal cost per unit
down with scale production and finally you have a page or three showing, what it
is you've done that's hard to do. IE you have patents protecting your idea, [board meeting presentation]
which you've already filed and it's not some idea that people at Google, with its
engineer army could likely read your slides as you build them and just copy
what you've done and do it themselves. Well you figure out how much money you
need to get a couple of years down the road. This point where you're pushing
product out the door and well say you asked for three million dollars from[cost pie chart]
investors who would then own maybe a third or more of the company day one.
You're valuing then your idea, your time, your brain, your patents, all combined for
I'll say six million dollars already then you're asking investors to pile
three million dollars in cash on top of that six million. So that the combined
company of your ideas and you, are now worth a total of nine million bucks.
You'll also want to make talented hires to whom you can't afford to only pay[business woman shaking hands]
cash. So you'll allocate a bunch of shares or
options on shares to be granted to those new highly talented employees as well.
Maybe those options or shares are worth another million boxes, as you add everything
up. Such that your total company now has a notional combined value with
everything of ten million bucks and that's when the Trojan hit the road [man driving red car]
and you see if you actually can build this thing. Mow little Roomba mow.