The Funding Process of a Start-Up

Which do you prefer: 100 percent of nothing, or 17 percent of $2.6 billion?

From the beginnings of an idea to the IPO, a start-up experiences multiple stages throughout its lifecycle. In particular, funding is a major make-it-or-break-it point for start-ups, especially for those entrepreneurs unable to see the value in sharing ownership of the company with others.

In this infographic from Funders and Founders, we take a look at a hypothetical start-up. As funding comes in, the founder gives up part of his company, which is equity. While over time this entrepreneur will have a smaller piece of the company, the company’s size far outgrows its initial idea stage.

In the end after the company is divided among co-founders, family, employees, investors and the public, the founder is left with 17.6 percent of the company—a far cry from the 100 percent he had when the start-up was in Idea Stage. However, in the end, $235 million was raised, and the company is valued at $2.6 billion. While the percentage of his stake continues to drop with new investors and funding sources, the overall size of the company is growing. For these entrepreneurs, as they relinquish control of the company to others, it’s important to carefully vet each potential investor to make sure the money is coming from a reputable and trustworthy source.

For the full article “How Funding Works – Splitting The Equity Pie With Investors” by Anna Vital, please go here.