Entrepreneurial Finance: Core Concepts

Startup Money: The Basics for Founders

Entrepreneurial finance is different. Here’s what you need to know.

1. The Big Picture:

• High Risk, High Reward: Investors expect massive returns (10x+) to compensate for high failure rates.
• Illiquid: Your shares aren’t traded daily; investors are in for the long haul (5-10 years).
• Growth is King: Focus on scaling, not short-term profit.

2. Where to Get Money (Typical Stages):

• [ ] Bootstrapping / FFF: Your own money, friends, family. (Very early)
• [ ] Angel Investors: Individuals investing their own money. (Seed Stage)
• [ ] Venture Capital (VC): Firms investing institutional money. (Seed, Series A, B, etc.)

3. Valuing Your Startup (It’s Tricky!):

• No Revenue? Forget traditional valuation.
• VC Method: Backwards from potential exit value.
• Scorecard Method: Compare to similar startups, adjust for your strengths.
• Key: Valuation is often about potential and negotiation.

4. The D-Word: Dilution

• Every time you raise money, you issue new shares.
• Your ownership percentage (and existing investors’) goes down.
• Action: Understand your Cap Table and model future rounds.

Golden Rule: Always be building value. The better your business performs, the easier and more favorable your financing will be.