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Startup Journey: From Vision to IPO

Vision and Formation

  • Idea Generation: Begins with a vision for a unique product/service.
  • Initial Excitement: Founders design logos, names, and concepts.
  • Incorporation: Legal structuring is required. In the US, incorporation costs range between $25 and a few thousand dollars.

Seed Investment

  • Raising Initial Funds: Usually through family, friends, or crowdfunding.
  • Shares Allocation: A typical startup issues 100,000 shares, with founders holding 40,000 shares each, and a family friend receiving 20,000 shares for a $50,000 investment.
  • Valuation: This seed round values the company at $250,000. The founders’ shares are now worth $100,000.

Growth and Series A

  • Beta Trial Success: With traction, it's time to raise more capital.
  • Series A Funding: The company seeks $1 million from angel investors and VCs (venture capitalists).
  • Negotiations: Investors evaluate the team, product, and progress. A post-money valuation of $6 million for $1.5 million investment results in 25% ownership by investors.

Dilution and Capital Raises

  • Dilution: The founders and previous investors are diluted to 75% ownership. Shares increase from 100,000 to 133,000.
  • Valuation and Share Value: Post-investment, each share is now valued at $45, with founders' shares worth over $1.8 million.

Further Rounds and Exit Strategy

  • Series B, C, D: As the company grows, it undergoes multiple rounds of fundraising.
  • Stock Splits: Shares are periodically split, increasing the total number of shares held by everyone.
  • Profitability: After 6 years, the company becomes profitable, and it’s time for an exit.

Exit: Acquisition or IPO

  • Acquisition: Investors usually sell all their shares, but founders often vest shares in the acquiring company.
  • IPO (Initial Public Offering): The company issues new shares to the public. After the IPO, founders hold tradable stock that can be sold on the market. The founder, holding 10 million shares, sees their personal wealth soar to $700 million.

Conclusion

  • The Journey: What started as a vision has now grown into a massive success. Though investors call it an exit, for many founders, it’s just the beginning of new opportunities.

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