When you think about funding, there’s a lot of stages as I mentioned last in the last lesson in this lesson we’re talking about the later stage a series D, E, F, H, late stage, M and A, IPO, leveraged buyouts, secondary offering.
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When you think about a lot of the large companies out there there’s a lot of successful people who ended up making money through their startups, many cases, they raised money and then they ended up selling or they use leverage or took IPO, like you look at the GoPro guy, right? He went public, he’s been on Shark Tank a few times.
When you think about series A, B and C rounds that are typically smaller these days I’m seeing A rounds a lot of times around 10, 15 even 20 plus million dollars. In series A funding, investors are not just looking for great ideas. They’re looking for traction.
So you need to make sure that you have a money making business. And the average estimated capital raise for a series B round is 32 million and series C rounds typically are focused on scaling as well series B.
Now with series D, E and F, you know people are like, alright, you got a real business, you’re headed towards IPO, you want to expand before going public or selling and there’s not a lot of companies that make it to series D, E and F.
Just look at UI path. When UI path first started raising money, you know much lower rounds and then later on, the valuation started going high and at one point before they went public, people were like wait, their last private round may be higher than the valuation of when they’re going public.
Now, eventually it all sorted out and their investors did fine but that just shows you how much pent up demand there is. You all know that we work example as well in which we work at higher valuations in the private market than they did in the public markets and people learned a lot from that but generally speaking, what they ended up seeing, with the whole we worked fiasco, is with a lot of these companies, they, you know, the private investor is like all right we need to make sure unit economics are right and these companies have long-term potential.
Now with M and A that just stands for Mergers and Acquisitions. You know, a lot of people go out there and they just buy companies. You can merge with others, or you can buy like Facebook bought Instagram, they bought WhatsApp, Google bought YouTube and Microsoft has bought a ton of companies including Skype and GitHub and that is what happens in the M and A ramp heck, they even bought LinkedIn.
And you can grow a lot through M and A. Just think about Minecraft or Microsoft and LinkedIn and the potential synergies are endless out there. And the whole thing I have for you is when you’re doing this, just make sure it’s strategic if you’re the one buying. Going back to funding stages as I mentioned, there’s Private Equity, there’s Venture Capitals, Public Markets.
Typically what you’ll find is, the venture capitalists will give you higher valuations for Private Equity cause Private Equity is typically cashing out founders.
Then when you think about Merging and Acquisitions you can end up getting paid a little bit more than what you can in the private markets selling to a Private Equity Company. And then with public markets, if you go IPO, typically that’s where the highest valuations are.
In many cases, what you’ll find is when companies buy you and they’re publicly traded, let’s say you get bought out by like a Salesforce. If they’re valued at 60 times profit I’m making it up or 90 times profit and they’re buying you for 10 times profit or 20 times, they’re making money on the buy cause the markets are evaluating more than what they gave you cash for.
And that’s why a lot of people go public because when they go public, you know, you can raise money and then you can use that money to buy companies for less when the public markets value at you for way more.
So you got to think about your exit strategy and what you think is right for you but you don’t need to worry about that too much right now because if you listen to this course you want to grow faster and typically you’re going to be in the earlier stages and you may want to think about funding and what capital can have to your company what effect it can create.
Can it help you grow a lot faster? Can you end up just scaling up much quicker? So think about that when you’re thinking about the whole funding thing.
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