Startup Funding

How Startups get Money

  1. Friends and Family
  2. Consulting/Work on the side
  3. Angels - Individuals or in groups (e.g. Walnut or Common Angels)
  4. Venture Capital - Organized as funds - two sided (e.g. North Bridge or NEA)
  5. Incubators/Seed funding companies (e.g. Y-Combinator or TechStars)
  6. Crowdfunding (e.g. KickStarter)
  7. (Banks)

Venture Capital

What is a VC firm?
  • A “firm” that stands between two constituencies
  • “Limited Partners”
    • Organizations like Universities or Pention Plans
    • Who need to “manage” a large sum of money
    • They allocate portions of their funds to different investment types
    • One of the investment types is “venture capital”
    • Considered high risk and very long term
  • Startups and other businesses who need money
    • New teams looking to raise capital
    • Previously funded teams who need more capital
    • Existing companies who are established and need more capital.
  • “Value add” of VC firm
    • Locating the best investments into a portfolio of investments
    • Managing the portfolio companies for best outcome
    • Over 7 years goal is
      • 10% companies are 100+x successes
      • 40% companies do “ok”
      • 40% fail outright
    • VC pools “Limited Partner” funds into numbered Funds
    • Each VC will choose an appropriate size fund.
What is the process?
  • Rounds of investment
  • How valuation changes
  • Term sheets
  • Liquidation preferences will turn your hair grey.
  • Ideal First Round Funding Terms
  • Founders have an idea - investors have money
  • It’s a contract between founders and investors
Rounds of financing
What you negotiate over
  • Valuation and Investment amount are the key parameters
  • How term sheets turn into “deals”
  • What’s a seed deal?
  • Should you or shouldn’t you?
  • What are VC firms really?
  • General and Limited Partners
  • Why do people love/hate vcs?