Folks, it works like this;There are to forms of financing that are available.1.) Debt2.) Equity1.) Debt: You borrow money. You still own everything, but you're borrowing money, paying interest on that money. Whether it's a credit card or a loan from a friend a second mortgage or a VC, you'll be paying some amount of interest on the money.1a.) Usually, when a VC does a 'debt round' they're also acquiring WARRANTS, rights to buy SHARES at a discounted price. A warrant is an EQUITY INSTRUMENT.2.) Equity: Equity is ownership. When you have 100% equity in a house, a car, or a company, that means you own the whole thing. If you get Investors in your company (as opposed to Debtors), they are BUYING a percentage of the company. There is no interest rate on this money, you've simply sold part of your asset to them. This is how the stock market works. Only when you buy a share of Apple, you're buying about 1/854,000,000th of the company, as there are 854,000,000,000 common shares outstanding. (There are technicalities that will bias this number a little, but we'll keep this simple.)Obviously, if an investor is buying X% of your company for $Y, he's expecting that X% is equal to Y+ (a whole lot) sometime in the not TOO distant future.As to how you get VC money, they don't just find you. It takes a LOT of time, a lot of work, carefully honed presentations, DEEP understanding of your market, your business, your advantages, etc.In short: 1.) Debt: You keep all ownership, but are borrowing money, paying it back PLUS interest.2.) Equity: You're selling ownership, but are acquiring cash to use to build your business. You never have to pay it back, but you're ownership when you sell to Google or whatever will be less.It would be fair to say that I have some familiarity with this process.I hope this helps everyone understand this stuff a tad.
Folks, it works like this;There are to forms of financing that are available.1.) Debt2.) Equity1.) Debt: You borrow money. You still own everything, but you're borrowing money, paying interest on that money. Whether it's a credit card or a loan from a friend a second mortgage or a VC, you'll be paying some amount of interest on the money.1a.) Usually, when a VC does a 'debt round' they're also acquiring WARRANTS, rights to buy SHARES at a discounted price. A warrant is an EQUITY INSTRUMENT.2.) Equity: Equity is ownership. When you have 100% equity in a house, a car, or a company, that means you own the whole thing. If you get Investors in your company (as opposed to Debtors), they are BUYING a percentage of the company. There is no interest rate on this money, you've simply sold part of your asset to them. This is how the stock market works. Only when you buy a share of Apple, you're buying about 1/854,000,000th of the company, as there are 854,000,000,000 common shares outstanding. (There are technicalities that will bias this number a little, but we'll keep this simple.)Obviously, if an investor is buying X% of your company for $Y, he's expecting that X% is equal to Y+ (a whole lot) sometime in the not TOO distant future.As to how you get VC money, they don't just find you. It takes a LOT of time, a lot of work, carefully honed presentations, DEEP understanding of your market, your business, your advantages, careful navigation of your personal network, etc.In short: 1.) Debt: You keep all ownership, but are borrowing money, paying it back PLUS interest.2.) Equity: You're selling ownership, but are acquiring cash to use to build your business. You never have to pay it back, but you're ownership when you sell to Google or whatever will be less.It would be fair to say that I have some familiarity with this process.I hope this helps everyone understand this stuff a tad.
Steampunk, if you start a business on personal credit cards, then your personal assets have pretty much no protection if you don't make a success of your business. That's fine if you don't have a house or any savings.
"It usually doesn't"Which is actually part of how Venture Capital works. Funds assume that most of their investments will, at best, have scrap value. 2-3 out of ten might turn an operating profit and pay back 1-2x their initial investment. One in 10 will pay for all the money lost on the other investments and make enough money to pay the investors in the venture fund back their promised returns.
thesteampunkNov 10, 2006
Why was my initial comment dugg down? Credit cards are a good way to start a business as long as you plan ahead.
pyrzqxglNov 10, 2006
Folks, it works like this;There are to forms of financing that are available.1.) Debt2.) Equity1.) Debt: You borrow money. You still own everything, but you're borrowing money, paying interest on that money. Whether it's a credit card or a loan from a friend a second mortgage or a VC, you'll be paying some amount of interest on the money.1a.) Usually, when a VC does a 'debt round' they're also acquiring WARRANTS, rights to buy SHARES at a discounted price. A warrant is an EQUITY INSTRUMENT.2.) Equity: Equity is ownership. When you have 100% equity in a house, a car, or a company, that means you own the whole thing. If you get Investors in your company (as opposed to Debtors), they are BUYING a percentage of the company. There is no interest rate on this money, you've simply sold part of your asset to them. This is how the stock market works. Only when you buy a share of Apple, you're buying about 1/854,000,000th of the company, as there are 854,000,000,000 common shares outstanding. (There are technicalities that will bias this number a little, but we'll keep this simple.)Obviously, if an investor is buying X% of your company for $Y, he's expecting that X% is equal to Y+ (a whole lot) sometime in the not TOO distant future.As to how you get VC money, they don't just find you. It takes a LOT of time, a lot of work, carefully honed presentations, DEEP understanding of your market, your business, your advantages, etc.In short: 1.) Debt: You keep all ownership, but are borrowing money, paying it back PLUS interest.2.) Equity: You're selling ownership, but are acquiring cash to use to build your business. You never have to pay it back, but you're ownership when you sell to Google or whatever will be less.It would be fair to say that I have some familiarity with this process.I hope this helps everyone understand this stuff a tad.
pyrzqxglNov 10, 2006
Folks, it works like this;There are to forms of financing that are available.1.) Debt2.) Equity1.) Debt: You borrow money. You still own everything, but you're borrowing money, paying interest on that money. Whether it's a credit card or a loan from a friend a second mortgage or a VC, you'll be paying some amount of interest on the money.1a.) Usually, when a VC does a 'debt round' they're also acquiring WARRANTS, rights to buy SHARES at a discounted price. A warrant is an EQUITY INSTRUMENT.2.) Equity: Equity is ownership. When you have 100% equity in a house, a car, or a company, that means you own the whole thing. If you get Investors in your company (as opposed to Debtors), they are BUYING a percentage of the company. There is no interest rate on this money, you've simply sold part of your asset to them. This is how the stock market works. Only when you buy a share of Apple, you're buying about 1/854,000,000th of the company, as there are 854,000,000,000 common shares outstanding. (There are technicalities that will bias this number a little, but we'll keep this simple.)Obviously, if an investor is buying X% of your company for $Y, he's expecting that X% is equal to Y+ (a whole lot) sometime in the not TOO distant future.As to how you get VC money, they don't just find you. It takes a LOT of time, a lot of work, carefully honed presentations, DEEP understanding of your market, your business, your advantages, careful navigation of your personal network, etc.In short: 1.) Debt: You keep all ownership, but are borrowing money, paying it back PLUS interest.2.) Equity: You're selling ownership, but are acquiring cash to use to build your business. You never have to pay it back, but you're ownership when you sell to Google or whatever will be less.It would be fair to say that I have some familiarity with this process.I hope this helps everyone understand this stuff a tad.
goodbrainNov 10, 2006
Steampunk, if you start a business on personal credit cards, then your personal assets have pretty much no protection if you don't make a success of your business. That's fine if you don't have a house or any savings.
goodbrainNov 10, 2006
"It usually doesn't"Which is actually part of how Venture Capital works. Funds assume that most of their investments will, at best, have scrap value. 2-3 out of ten might turn an operating profit and pay back 1-2x their initial investment. One in 10 will pay for all the money lost on the other investments and make enough money to pay the investors in the venture fund back their promised returns.
synaeNov 11, 2006
Better article:<a class="user" href="http://www.paulgraham.com/startupfunding.html">http://www.paulgraham.com/startupfunding.html</a>
parkjins33Nov 1, 2007
hey,if you got passion on startup, visit www.micro-funding.com and raise many small funds from micro-investors...my two cents..<a class="user" href="http://www.micro-funding.com">http://www.micro-funding.com</a>
ideafryAug 28, 2008
Venture Capital : Spurring Innovation and Growth @ <a class="user" href="http://www.sociableblog.com/2008/08/08/venture-capital-spurring-innovation-and-growth/">http://www.sociableblog.com/2008/08/08/venture-cap ...</a>