STARTUP FUNDRAISING STOCK 101 47s
- Stock represents company ownership, distributed in shares.
- Shareholders' ownership percentages are determined by their shares relative to total issued shares.
- Ownership can be acquired via cash investment or other valuable contributions like hard work.
- Shareholders' ownership determines dividend entitlement and voting power on key decisions.
- Example company FounderHub, started with 1 million shares, split evenly between two founders for equal 50% ownership.
- Most startups incorporate as Delaware C-Corporations for investor familiarity, easy setup, management, and tax benefits.
STARTUP FUNDRAISING A PRICED ROUND: RAISING MONEY FOR STOCK 101 2m17s
- Priced rounds are traditional capital raising methods where company valuation is agreed upon, and investors receive shares.
- FounderHub, making $10,000/month, decides to raise $500,000.
- Company valuation considers many factors like addressable market size, unique technology, and potential margins.
- Tech startups are often valued based on scale potential and margins rather than current revenue.
- An average valuation in Silicon Valley for tech startups could be around $4 million pre-money.
- Investor Gus agrees to invest $500,000, representing about 11% of the company.
- Companies issue new stock to investors, diluting the original shareholders' percentage ownership.
- FounderHub issues 125,000 new shares to Gus, diluting founders' ownership to 44.4% each.
- Post-money valuation of FounderHub becomes $4.5 million.
- Priced rounds require negotiations on share voting rights, liquidation preferences, and board composition.
- Legalities and agreement complexities can prolong a priced round, encouraging the use of convertible notes.
STARTUP FUNDRAISING CONVERTIBLE NOTES 101 8m36s
- Convertible notes act as a more rapid fundraising instrument by delaying the valuation.
DELAYS THE VALUATION CONVERSATION 8m40s
- Convertible notes expedite investment process with fewer negotiations and legal expenses.
- They function like a loan with company stock as collateral, where future valuation is to be determined.
