GENCO MEMO-June 14, 2024: Understanding How Startup Funding Actually Works
I needed to get some clients up to speed on startup funding. Here are the videos I used to get the job done–fast!
Here's the situation.
I am working with several startup companies, and they are considering multiple funding rounds.
Although their idea is good, they are making comments that made me realize they may not truly understand how raising funds and dilution works.
For example, one founder talks about percentages, not units or shares. He also doesn't want to drop below 51%. He thinks that's how he will stay in control. (It's a little more complex than that.)
At this point, I realized they needed to spend some self-study time to get up to speed.
I looked for some good videos I thought would do the job in a few hours.
Here are the videos I used. They're from the same source but the production value and style is excellent.
I looked at others but these were the best-by far!
Video #1: LLC vs INC: a guide for startups - by Slidebean
This video covers:
The basics of legal entities.
Understanding which entity works for which kind of business.
The difference between stock and ownership.
Raising rounds of funding with an LLC vs. a C-Corp.
Taxes on each type of entity.
Common state and international exceptions.
A perfect introduction to choosing the right entity type.
Video #2: Startup Funding Explained: Series A vs Seed - by Slidebean
The biggest mistake people make when trying to achieve successful growth is not understanding how funding rounds work. This video gives an excellent explanation of how naming round ‘Seed’ vs ‘Series A’, or ‘Series B’ vs Series C’ responds mostly to the company stage, and a little bit to the size of the round.
This YouTube video will show you how to avoid common mistakes people make when trying to fund their startup.
Video #3: How to Build A Cap Table (and not get screwed) - by Slidebean
Lastly, I'd recommend this video to anyone looking to master how the math works. There is also a link to a free cap table you can play with to work different scenarios.
I hope these videos save you from hours of fluff YouTube content on startup funding.
That is all.
Enjoy your weekend.