Finance: How Do You Get Your Startup Funded?

How do you get a startup funded? Depends if we're talking about a tech startup, or a non-tech startup. If you've got a promising, budding tech company, you'll find it's much easier to raise capital. But if you're looking to get a restaurant off the ground... your chances of finding funding are about as good as literally getting a restaurant off the ground. So... good luck with that. You'll do an A round in your first funding, a B round next, and so on. Venture capitalists are the ones writing the checks. Investment bankers are the ones taking you public in your IPO.

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Transcript

00:27

huge valuations. Which means that the capital invested is almost free for the

00:31

founders and there are literally thousands of companies around the world

00:35

who invest in early technology startups.[Global map with business buildings] But if you're trying to fund a

00:39

restaurant, a bar, flower-arranging chain, a bug spraying service and auto service

00:45

business. Well then you're probably badly out of luck. If you do get financing,

00:50

it'll be on vastly worse terms than if you would have invented a new robot operating

00:55

system that could see in the dark, or an electronic zit zapper, or a drug that

00:59

made you happy you knew it and you didn't even have to clap your hands. [T-Rex clapping hands]

01:03

Since the restaurant industry for example is such a bad investment with

01:08

some 95% plus of them going bankrupt in the first few years.

01:12

Very few investors are willing to take any risk investing in them. As a result

01:17

if you want to fund that kind of business, well you most likely have to

01:21

fund it yourself by saving your pennies, waiting for old uncle Larry to kick the

01:25

bucket and leave you money and/or mortgage whatever you can of your house [man at Chase Bank]

01:29

at the bank. Knowing that if your restaurant goes belly-up, you rethink

01:33

your five-year-old SUV in terms of living room, kitchen here and bathroom

01:39

there. Well if you do have the knack for tech, well and you come up with the lawn

01:43

Roomba which will make mowing the lawn a breeze. Then the process usually begins

01:47

with a business plan. You'll leverage Google slides, a free presentation tool,

01:51

where you can have one page describing your product, a page covering the size of[business slides]

01:55

the market, ie the number of potential buyers, anyone with a backyard basically,

01:59

along with the price you'd expect them to pay. Another page covering the costs

02:03

of making the first one, the first hundred, the first thousand, the first

02:07

hundred thousand units. Were presumably the marginal cost per unit

02:11

down with scale production and finally you have a page or three showing, what it

02:15

is you've done that's hard to do. IE you have patents protecting your idea, [board meeting presentation]

02:20

which you've already filed and it's not some idea that people at Google, with its

02:25

engineer army could likely read your slides as you build them and just copy

02:30

what you've done and do it themselves. Well you figure out how much money you

02:34

need to get a couple of years down the road. This point where you're pushing

02:37

product out the door and well say you asked for three million dollars from[cost pie chart]

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investors who would then own maybe a third or more of the company day one.

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You're valuing then your idea, your time, your brain, your patents, all combined for

02:49

I'll say six million dollars already then you're asking investors to pile

02:53

three million dollars in cash on top of that six million. So that the combined

02:57

company of your ideas and you, are now worth a total of nine million bucks.

03:03

You'll also want to make talented hires to whom you can't afford to only pay[business woman shaking hands]

03:07

cash. So you'll allocate a bunch of shares or

03:10

options on shares to be granted to those new highly talented employees as well.

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Maybe those options or shares are worth another million boxes, as you add everything

03:18

up. Such that your total company now has a notional combined value with

03:23

everything of ten million bucks and that's when the Trojan hit the road [man driving red car]

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and you see if you actually can build this thing. Mow little Roomba mow.