Understanding the Startup Financing Process

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The 3F‘s, Seed Capital, Angel Capital, Venture Capital, Series A, IPO‘s sounds familiar or does it?

Many budding entreprenerus, and especially those without a background in finance, and even those with a background in finance won’t really understand how the startup financing process functions.

Or more adequately how you go from cracking open your piggy bank to issuing shares on the DAX, or any stock exchange for that matter.

But first thing’s first, your 3F’s are your Friends, Family and Fools, and they’re the only ones willing to donate some money to your cause, friends and family, cause they care, and fools, cause well only a fool would give someone they don’t know cash.

Next up you’ll get seed money, these are typically people who want to flip their equity within 6 months, quick in grow the company rapidly, and quick out strategy.

Next up, are the BA’s (Business Angels) – who invest on the basis of 30x expected ROI.

These three groups comprise the “Valley of Death” in your startups life, basically meaning, these are the moments when your company either 1. Does, or 2. Dies.

Once your company’s out the red, and has broken even, this is where early stage VC comes in, typically Series A, then Series B for early stage, C for early late stage, etc… etc… and if you’re lucky enough, you get the company to issue an IPO, or Initial Public Offering meaning that the shares of your company can be traded on stock markets such as NASDAQ, DAX, etc… but when you get here, you’ll have a Morgan Stanley underwriting your deal, you may be going through a M or A, and all sorts of crazy things can happen to you so for the basis of this site, our database, and resource we’ll stick to the early stuff. For a visual representation of this entire process check out the really amazing graph, thanks of Wikimedia, and a bit edited by us.

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