What does a Typical (funded) Path to Success Look Like?
So you have a great idea that you want to get off the ground. What is the typical route to success? If you don’t have the resources to do that yourself, you can start with angel funding. Angel funding for an idea is generally somewhere from $50k to $500k and often comes from a single wealthy investor (must be an “accredited investor” or an investor with a certain amount of assets that the law allows to invest in riskier ventures). This should be enough to produce the first prototype, proof of concept, or beta version of the idea. This can often include your base salary for the time it takes. Depending on what you are used to earning, base salaries can range from $100k to $250k – really whatever you can convince an angel is reasonable. Angel rounds generally cost 10% to 35%, but that depends on the amount raised and the perceived value of the idea at this stage. You may need additional angel rounds, from the same angel or other investors, to bring the idea to market. The next round of funding is generally your Series A round, and often comes from a venture capital firm, or VC. A rounds generally range from $2MM to $5MM, but can be as big as $25MM or $250MM depending on the business – let’s stick with a typical software based tech startup. A rounds run from bringing the product to market to finding a scalable market strategy. With a scalable market strategy, your Series C round will bring the money to help pour on the gas on the scalable market strategy – growing the business to another level. Sometimes a Series B round is advisable in between, which increases the valuation of the company and brings in additional cash. This is very helpful for acquisitions in that you have more cash to use, and to the extent you use stock instead of cash to pay the acquisition purchase price, your stock has a higher value. Acquisitions, from tiny 1 man ventures to firms as big as your own, are a valuable part of your growth strategy. There can be multiple A, B, and C rounds – but in every round, you have to give stock and your original interest gets further and further diluted. To the extent you are able to grow the company without taking on financing, this is called bootstrapping. From your C round, your exit strategy is usually either getting acquired or going public. Of course your not done there, since you are the talent that makes the business run and either your acquirer will make you revest (more on that in another post), or you’ll be needed to run the public company.