Protected by Copyscape #1 Startup Funding - Startup

#1 Startup Funding

we are going to disucss about startup funding

If you want to open a startup then how you can raise funds for that?

So you want to start an startup and you have an idea

You have to make business model for that idea and run it successfully

But from where will the money come that you need to start your business?

We call this as Fund Raising

I am telling you a story to understand this

You have a startup idea and you want to do a business on that

Let’s assume that you have taken 1 lakh(In indian currency) from your father to start your business

You have prepared your website,infrastructure and whole business model

Now when you go into the market you need more investment and money

So from where will you get that money?

You have two options : either you take loan or approach investors

let’s assume you don’t take loan and go to investors. So let’s understand investors first

So basically investors are of 2 types : Angel Investors and Venture Capitalist

Angel investors are big businessmen like CEOs of companies

They invest in your business and provide business know-how. They tell you the loopholes in your business model and way to improve it

Basically they help you in improving business and also invest in your business

Ventures capitalist are different. They invest in your business but don’t provide business know how

Venture capitalist are companies which take money from big investors and invest it in your company so that if your business makes profit,those businessman will be profitable

They are similar to share market brokers

Now you go the investor and tell him to invest in your company whose vvaluation is 10 Crores

Way to calculate valution of a company is different which we will disucss in a defiintely different article

So you go the investor and tell him that valuation of your company is 10 Crores and I want to give you 10% stake

which means you are demanding 1 crore from them

And on return you are giving them 10% share of your company

So after requesting for the investment you came back to home

After somedays you have 2 offers

One from Venture Capitalist and one from Angel Investor

Angel Investor says I will invest 6 lakh on valuation worth 6 Crores

Venture capitalist says I will invest 40 lakhs on valuation worth 8 Crores

So if you see as per offer,VC has a nice offer than Angel Investors

But Angel Investors will also provide you business know how

They will help in every level of your business. They have a wider netwoek and can help you in making a big player in the market

But Venture Capitalist is providing you more money

So what you do is you accept offers of both.

And you negotiate with Angel Investors that valuation of your company is 8 Crores

They both agree to it

So overall you get 1 crore on valuation worth 8 Crore

Due to which you company gets diluted by 12.5%

Your share is now only 87.5%

But in return you get 1 Crore for that

The investment you got of 1 crore,you spend it all within a year

Now comes second round of investment

Again you go the investors and tell them that valuation of your company has now increased by 10 times

Now I will pitch on 100 Crore instead of 10 Crore

Value of my company is now 100 Crore

Again you get the investment and again you dilute 10% share

So when you go for the investment you ask for 10 Crore and vaaluation of my company is worth 100 Crore

which means again you are giving them 10% stake

So what will happen,87.5% will get reduced by 10% and the money you got as investment will also get reduced by 10%

This thing is not always right

There is one thing Share Holder Agreement

which has a Anti Dilusion Clause

Acc to this if you have invested in a company your share will not get diluted

So if you need more investment to grow your business,that share will go from your shares

which means the 10% you are paying will be through that 87.5% only

12.5% share will be fixed for the person who invested before

You run your compaany for one more year and your market share again has increased

Now you want to open headquarters in every state for which yiu again need investment

Now you go for third round of investment

You say valuation of your company is 500 Crore

And again you dilute your 10% stake

After this year,finally your company is in profit

Your balance sheet shows profit that your company is growing

This iss not like previous years

where your company is growing but is not in profit

Here you do buy out

What you do in buyout,you go the company and say my company is in profit and value of my company is 2000 Crore

And you say them that you have this much share in return of which you give me this much money

And this company is yours

Big company agree to it,but they are also brave. They think that if you leave as you are the only person who has made this company profitable

You are the one who knows the maximum about this business

You have the maximum experience about this business

So if you leave this,then who knows this business may again suffer from loss

So that company gives you some percent of money in the form of shares

so that your interest remains in that existing company

You will also get share from the profit so you will also do efforts to make the company grow

And ultimately the big company will get profit from this

We call this thing as buy out

And if you don’t want investment,next medium is IPO-Initial Public Offer

Here you list your company in share market

And here your investors are general public

If I have listed my company in IPO,then you can also buy share of my company

If you think that my business model is good then you can be my partner by buying share of my company

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