So today let's learn about start money ,How it gets funded and How is the valuation is calculated
Types of startup
So overall there are 2 types start-up
1.Self owned startup (bootstraped)
2.Investor money backed startup
We will mainly talk about the 2nd type. The first type is easy to understand
- You start a business using your own money
- It generates revenue
- you use this revenue to expand
- The cycle goes on
This kind of startup are less likely to grow to million dollar company as expansion depends on growth and vice versa
Investor money backed startup
So you build a startup you want funding for it. Investor usually invest to your startup for a return that return can come for larger investment or public offering in the future. Usually investor buy some share from the company whose value will increase
*How valuation is set *
If some investor buy 10% with 10USD then the company value is 100US
Now in future suppose the founder who has 90% or the initial investor want to sell some of their share but this time as the company is growing they sell 5% with 10USD then the valuation rise upto 200USD making the existing share holder's more richer
Usually founder can keep 50% or up to keep the control but if it's IPO (public company) then there will BOD to control everything
So there are stages for raising this money.Here is the brief
N.B it's just generic one it can change based on many parameter
1. Pre-Seed Funding
Definition: The earliest stage of funding where entrepreneurs seek capital to develop their idea into a tangible product or service.
Purpose: Validate the idea, build an MVP (Minimum Viable Product), and conduct early market research.
Investors: Founders themselves, friends and family, angel investors, or startup incubators.
Example Company: Airbnb (2008)
Founders Joe Gebbia and Brian Chesky rented out air mattresses in their apartment to generate $20,000, which served as their pre-seed funding. They used this capital to create the first version of Airbnb.
2. Seed Funding
Definition: The first official round of funding that helps startups scale their MVP, hire a team, and gain initial traction.
Purpose: Validate the business model and refine the product-market fit.
Investors: Angel investors, early-stage venture capitalists, and equity crowdfunding.
Example Company: Uber (2009)
Uber raised $200,000 in seed funding from angel investor Garrett Camp. The funds were used to launch the Uber app and begin operations in San Francisco.
3. Series A Funding
Definition: Focuses on scaling operations, building a user base, and generating consistent revenue.
Purpose: Expand the product offering and enter new markets.
Investors: Venture capital firms specializing in early-stage funding.
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Example Company: Robinhood (2014)
Robinhood raised $13 million in Series A funding led by Index Ventures. The capital helped the startup refine its commission-free trading app and attract more users.
4. Series B Funding
Definition: Aimed at scaling up even further, focusing on market expansion and improving existing infrastructure.
Purpose: Optimize processes, increase market share, and build a competitive edge.
Investors: Larger venture capital firms and private equity firms.
Funding Amount: $15 million - $50 million.
Example Company: Pinterest (2011)
Pinterest raised $27 million in Series B funding led by Andreessen Horowitz. This funding allowed Pinterest to scale its platform and establish itself as a major social media player.
5. Series C Funding
Definition: For late-stage startups that have established themselves and seek to scale globally, develop new products, or acquire other businesses.
Purpose: Drive significant market expansion and prepare for an IPO or acquisition.
Investors: Late-stage venture capitalists, private equity firms, and institutional investors.
Example Company: Stripe (2016)
Stripe raised $150 million in Series C funding, valuing the company at $9.2 billion. This funding supported its global expansion and development of advanced payment solutions.
6. Series D (or Later Rounds)
Definition: For companies seeking additional capital to refine their business or achieve profitability. Sometimes called "growth funding."
Purpose: Expand further, invest in R&D, or address challenges like declining market share.
Investors: Private equity firms, institutional investors, and sometimes sovereign wealth funds.
Example Company: SpaceX (2015)
SpaceX raised $1 billion in a funding round led by Google and Fidelity Investments. The capital supported the development of the Starlink satellite program and space exploration initiatives.
7. Initial Public Offering (IPO)
Definition: The process of offering shares to the public through a stock exchange.
Purpose: Raise massive capital, provide liquidity to investors, and achieve global recognition.
Investors: Public market investors, institutional investors, and retail investors.
Example Company: Facebook (2012)
Facebook raised $16 billion in its IPO, one of the largest in tech history. The capital was used to further expand its global operations and invest in new products like Instagram.
Thanks for reading
Suggested : https://www.ycombinator.com/library/4A-a-guide-to-seed-fundraising
Top comments (2)
Your name feels like a redacted CIA file 'something something,' huh? What’s next, 'classified classified'?😏🫣
Updated Bro :)