How startup funding works (linkedin post)

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Linkedin Post

From Idea Stage to IPO, here’s how each stage splits the pie 👇

🔸 Idea Stage

You are the only person in your still unregistered company, you are not even thinking about equity yet.

🔸 Co-Founder Stage

A true partnership is based on respect. Respect is based on fairness. So you give your co-founder 50%.

🔸 The Family and Friends Round

Your co-founder has a rich uncle. You give him 5% of the company in exchange for $15,000 cash. Now you can afford room and ramen for another 6 months while building your prototype.

🔸 The Angel Round

You find an angel who looks at what you have and thinks it’s worth $1 million. He agrees to invest $200,000. 

$1,000,000 + $200,000 = $1,200,000 post-money valuation

Now divide the investment by the post-money valuation $200,000/$1,200,000=1/6= 16.7%

The angel gets 16.7% of the company, or 1/6.

🔸 Venture Capital Round

You built your first version and you have traction with users. Let’s say the VC values what you have now at $4 million. He says he wants to invest $2 Million. The math is the same as in the angel round. The VC gets 33.3% of your company.

Your first VC round is your series A. Now you can go on to have series B,C, and so on.

🔸 Going Public

The people who have invested so far want to finally convert or sell their restricted stock and get cash or unrestricted stock. This is a liquidity event as a result of the IPO process.

And the investment bankers, like Goldman Sachs and Morgan Stanley, will give you a call and ask to be your lead underwriter – the bank that prepares your IPO paperwork and calls up wealthy clients to sell them your stock. Bankers get 7% of all the money you raise in the IPO. In the infographic, your startup raised $235,000,000 in the IPO – 7% of that is about $16.5 million (for two or three weeks of work for a team of 12 bankers). As you see, it is a win-win for all.

➡️ At the end of the day, 100% of nothing is a lot smaller than 17% of a successful company.

#founder #investor #venturecapital #privateequity #i5invest #i5growth

Credit: Anna Vital - Founder of Adioma

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GitHub - acheong08/ChatGPT: Lightweight package for interacting with ChatGPT's API by OpenAI. Uses reverse engineered official API.

GitHub - acheong08/ChatGPT: Lightweight package for interacting with Cha... Lightweight package for interacting with ChatGPT's API by OpenAI. Uses reverse engineered official API. - GitHub...