A Round Financing

Finance a la Shmoop. How do you get your startup funded? If you're leaning is in

this direction, well then first you pray. Can't hurt right? Okay well maybe it can,[two men in church]

shocking. Well the world of startups is really a tale of two cities or types of

business. There's tech startups and then there are

non tech startups. The former is lavishly funded with tremendous resources and

huge valuations. Which means that the capital invested is almost free for the

founders and there are literally thousands of companies around the world

who invest in early technology startups.[Global map with business buildings] But if you're trying to fund a

restaurant, a bar, flower-arranging chain, a bug spraying service and auto service

business. Well then you're probably badly out of luck. If you do get financing,

it'll be on vastly worse terms than if you would have invented a new robot operating

system that could see in the dark, or an electronic zit zapper, or a drug that

made you happy you knew it and you didn't even have to clap your hands. [T-Rex clapping hands]

Since the restaurant industry for example is such a bad investment with

some 95% plus of them going bankrupt in the first few years.

Very few investors are willing to take any risk investing in them. As a result

if you want to fund that kind of business, well you most likely have to

fund it yourself by saving your pennies, waiting for old uncle Larry to kick the

bucket and leave you money and/or mortgage whatever you can of your house [man at Chase Bank]

at the bank. Knowing that if your restaurant goes belly-up, you rethink

your five-year-old SUV in terms of living room, kitchen here and bathroom

there. Well if you do have the knack for tech, well and you come up with the lawn

Roomba which will make mowing the lawn a breeze. Then the process usually begins

with a business plan. You'll leverage Google slides, a free presentation tool,

where you can have one page describing your product, a page covering the size of[business slides]

the market, ie the number of potential buyers, anyone with a backyard basically,

along with the price you'd expect them to pay. Another page covering the costs

of making the first one, the first hundred, the first thousand, the first

hundred thousand units. Were presumably the marginal cost per unit

down with scale production and finally you have a page or three showing, what it

is you've done that's hard to do. IE you have patents protecting your idea, [board meeting presentation]

which you've already filed and it's not some idea that people at Google, with its

engineer army could likely read your slides as you build them and just copy

what you've done and do it themselves. Well you figure out how much money you

need to get a couple of years down the road. This point where you're pushing

product out the door and well say you asked for three million dollars from[cost pie chart]

investors who would then own maybe a third or more of the company day one.

You're valuing then your idea, your time, your brain, your patents, all combined for

I'll say six million dollars already then you're asking investors to pile

three million dollars in cash on top of that six million. So that the combined

company of your ideas and you, are now worth a total of nine million bucks.

You'll also want to make talented hires to whom you can't afford to only pay[business woman shaking hands]

cash. So you'll allocate a bunch of shares or

options on shares to be granted to those new highly talented employees as well.

Maybe those options or shares are worth another million boxes, as you add everything

up. Such that your total company now has a notional combined value with

everything of ten million bucks and that's when the Trojan hit the road [man driving red car]

and you see if you actually can build this thing. Mow little Roomba mow.