According to the video, there are five phases of startup funding. First is the seed funding. This is usually a personal investment from the entrepreneur, angel investors, or crowdfunding sources. During this phase, the entrepreneur will shape a business plan and build a team of talented individuals to present to potential investors. After this, they will try to obtain funding from a venture capital firm.
These firms consist of a group of investors who agree to pool their resources, select a solid group of ventures, and fund them. In the first round of such funding, a VC firm will typically invest about one-third of their budget in these projects, with the knowledge it could take up to 10 years to see a return on this investment. After three to five years, VC firms will determine whether or not they will continue to support certain projects and dispense further funding for selected companies.
Once a company is close to making a profit on its own, they reach the expansion stage. As they progress, and no longer need VC assistance, executives for the startup may consider an initial public offer (IPO) or sale. This is where the big pay out comes for venture capitalists, typically raking in about 700% on their investment.
So, whether you are hoping to fund your own entrepreneurial endeavor or are just looking to expand your knowledge of today’s business world, this in an interesting crash course.