How Startup Funding Works

How Startup Funding Works


Anna Vital from Founders and Founders explains how a startup can go from an idea to an IPO in the infograph, “How Startup Funding Works.” Have $15,000 and an idea? You can start your own company! Don’t want all the responsibility? Find a co-founder and you can split the work 50/50. Then, find some family and friends to invest for cheap before anyone else has a chance to set your idea in motion. This is also a good time to make an option pool and set aside stock for your future employees.

Next up: the seed round. You have found accredited angel investors to give you their own money, and even though your percentage of the company has dropped to around 31% , your $15,000 has turned into $200,000!

Then you find venture capitalists – people who have persuaded other people to put money into his or her fund during Series A — the first really significant round of venture funding. The VC now has 33.3% and you and your partner each have 19.2, but your company is now valued at $4 million. It is also the time to hire your first employees — they take a chance on your growing company by accepting a low salary and some stock.

After several more series of funding, investment bankers complete your Initial Public Offering paperwork and sell a lot of your stock. Finally, when your company does the IPO, anyone in the world can become an investor. You end up with 17.6% of the company, but your slice of the pie is now worth around $458 million. And as ­­Vital says: “100% of nothing is a lot less than 17 percent of a big company.”


About the author: Claire Carter

Claire graduated from the University of Maine in 2012 with a degree in journalism and a minor in English. She was a copy editor and reporter for her school newspaper, The Maine Campus, and The Working Waterfront, the third largest paper in Maine. She currently lives on the island of Vinalhaven.

You are seconds away from signing up for the hottest list in New York Tech!

Join the millions and keep up with the stories shaping entrepreneurship. Sign up today.