Funded

Chapter 1. What Makes a Startup Fundable?

So you want to raise money for your startup?

Before you decide if you should raise money, it is important to understand that not every company is fundable.

Fundable, for our purposes, means that your company is attractive to investors that provide growth capital to high-risk, high-growth-potential, early-stage ventures. This type of capital is generally referred to as venture capital, and can be provided by both professional investors (venture capitalists) and private individuals (angel investors).

Venture capital can be provided in exchange for equity (an ownership share in the company) or in exchange for debt. Not every company is attractive as a venture capital investment. Less than 25% of all startup funding is done through venture capital, either in the form of friends and family funding (24%) or through professional venture capital firms (1%). Companies that don’t raise capital self-fund, or use alternate forms of capital covered in the next chapter.

How Investors Make Money

Your investors, and you, will make money when your company reaches a successful liquidity event. A liquidity event is something that converts an investor’s equity in your company into cash. The most common liquidity event is an acquisition, where a company is acquired by another company or private equity firm. Investors can also see liquidity through IPOs (initial public offerings). While an IPO is not technically a liquidity event (it is actually ...