An average startup, if all goes well, gets about $15,000 from family and friends, about $200,000 from an angel investor three months later, and about $2 Million from a VC another six months later. Below is a picture describing how funding in startups works. And funding always implies equity and stock split. The basic idea behind these definitions is the splitting of a pie.
When you start something, your pie is really small. You have a 100% of a really small, bite-size pie. But once your idea gets funding support and becomes the value and a really big fish – it involves more people and efforts. And now you own just a small slice. A small slice but of a really big pie.
Stages of funding:
Idea stage includes one founder only. Potential 100% of equity belongs to him. He doesn’t have any prototype of his idea yet as well as money for its creating.
Co-Founder Stage – development of the idea with one of soulmates in exchange for a sweet slice of a pie. Co-founder gets 50% of shares.
Family and friends stage – transforming an idea into a physical prototype through first investments. On this stage first appears an Angel definition – someone who puts his own finance on early stage. Family and friends can invest some money in startup’s idea and become Angels. After all, to make a prototype money are required.
Funding: usually $25,000 to $150,000. You give your first investor % of the company in exchange for given cash.
The Seed Round* – a term for a formal pre-series A round. Not to run out of money startup begins to look for new sources. They can become:
Incubators, accelerators, and “excubators” – places which provide cash (about $25,000 (for 5 to 10% of the company), working space, and advisors.
Angels in fact – “sophisticated investors” who are ready to invest in such risky projects and also become Angels. These investors might be wealthy, well-connected individuals who are taken a personal liking to the product or a whole group of angel investors who club together to fund startups. Angels make their own decision about the investment, and in return for providing personal equity they take shares in the business. Typical size of investment can be anywhere from $10k to $1mn. Sweet spots are $100k-400k. They tend to not care so much about control and would love to help whenever they could.
Funding: <$2mln. Angel gets 15-20% of shares.
*Seed funding can be also made VCs as well as angels putting in a small check (compared to their typical size). Typically, it’s a sub $2mn round.
Series A (Venture Capital Round). Usually involves the whole firm which includes professional investors, board members, and people whose job is to help your business develop – Venture Capitals. They have variety of material sources – corporations and individuals, private and public pension funds, foundations – whose capital can be involved to grow startup. The job of venture capital firms is to find businesses with high growth potential. The firm take shares and has a say in the future of the company and its running.
After a period of time, often years, the venture capitalists sell shares in the company back to the owners or through an initial public offering, hopefully making much more that what they put in. In this round early employees join the startup team and it actively works for the implementation of idea. First employees get stock options but low salaries as well. This round can include number of series. Series A, B, and C funding rounds are merely stepping stones in the process of turning an ingenious idea into a revolutionary global company, ripe for an IPO (Initial Public Offering).
Funding: 2 mln. to 15 mln. in Series A and up to 100mln.+ in further Series.
IPO Stage. Afterall, when the business gets IPO status – everybody can become its investor. As you can see, the road to an IPO is a long and complicated one. To get shares (known as an IPO allocation) you need to have an account with one of the investment banks that is part of the underwriting syndicate.
Map of concentration of VCs in Europe and nearby.
According to Dealroom, since 2014 startups in Europe have raised €23B+ with a whopping €17B+ raised in London, Berlin, Stockholm, Paris and Tel Aviv. This really goes to show where the money is and where deals are being done.
The top five cities in which investors have offices in Europe according to our research are as follows:
Tel Aviv, Israel can be ranked in this top too. The full map can be checked out here. Also, you can find lists of included investors here and there.
Talking about US, there you can find the most recent and hot list of “US Venture Capital firms which are really investing in Europe”, prepared by Startup Grind.
Read more: http://intellicagroup.com/blog/