3 Real-life case study: Facebook’s history of startup fundraising explained
Now, I’ve been providing you with an example of an imaginary division of a pie for startup funding. But imaginary funding isn’t quite real life funding, is it?
So, what does all of this look like in the real world – are you really able to get $100,000 here and $3 billion there?
Well, if your startup has what it takes then anything is possible. Let’s look at one successful startup funding process: Facebook.
Idea stage
The idea stage with Facebook is a little murky. There have been instances where people have claimed to have come up with the idea and knowing who had the first light bulb moment is definitely a bit hard.
In reality, there are only a few people
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But Zuckerberg and co had other plans – they new something bigger is on the horizon.
Seed and expansion capital
The networking site starts growing rapidly, amassing users in campuses across the US. By the start of 2005, the site has nearly a million users in Harvard, Stanford, Columbia and Yale.
The company now embarks on a series of investment rounds that bring it closer to an IPO and a series of buyout attempts from rival companies.
First, the company needed more seed money to continue scaling the business – it wanted to move beyond the university campuses.
So, there is a Series A round in 2005.
Accel Partners, a venture capital firm, led the investment round with the total funds raised hitting $12,7 million. The valuation of the company hits $87,5 million.
The investment round featured angel investors Venky Harinarayan and Anand Rajaraman as well, who recalled the investment decision in a Forbes article by stating, “I remember talking to Accel after [an event at Stanford]. The key reason they invested was because they talked to Stanford students and found out that they use Facebook for two hours a day.”
Series B followed shortly in April 2006.
The lead investment came from Greylock Partners, with Thiel and Accell featuring strongly during the round. The total raised this time around stood at $27.5 million, increasing the valuation to $500 million.
Shortly after, Yahoo supposedly tries to acquire the company for $1 billion, which was
These two offers came from 1) a fund consortium led by Robertson Stephens Omega Fund (“RSC”) and Technology Crossover Ventures (“TCV”) and 2) CellTech Communications (“CellTech”), a vendor of wireless technology which had recently gone IPO.
Walnut Venture Associates are a group of angel investors. In 1997 the club had around a dozen individual investors, forming an “angel group”. Their primary targets are investments ranging from $250,000 to $1,000,000. This is due to the gap of capital funds initiated by the VC’s from not considering investments bellow $1 million. Also, angel investors can acquire significant equity at low cost, and help the growth of the company with their knowledge and expertise. By selecting only the most exceptional people and ideas, investments in startups can lead to massive returns on relatively small investments. As unexperienced entrepreneurs, they are a key resource to have in order to achieve quick growth, and secure the company’s early stages.
Acme Mfg currently is all-equity financed, with 2 mm shares outstanding at a current price of $40/sh. The firm announces they will raise $8 mm by issuing new equity to fund a new project (assume investors expect the NPV of the new project is 0).
Currently Ms. Deveroux, the founder of the company, holds almost all of the originally issued shares, except for 30,000 shares that she sold to her son for $20.00 per share, the estimated fair market value of the shares at the time they were sold to the son.
In 2005, after securing an investment of $3 million from Golden Opportunities Fund Inc. 3 in the form of
The 2016 balance sheet shows that this organization had revenue of 12 million dollars and expenses of 11.9 million. Total assets as of September 30, 2016 were 22 million dollars. This number shows that over 19 million dollars are investments.
Many us have heard don’t borrow money from family or go into business with friends. In the case of Tactus fund-raising, they faced many financial obstacles in raising their capital. Craig and Micah did the right thing by not obtaining funds from friends and family at first. One of the major reasons new startup companies fail is because they undercapitalize. A startup company must have enough capital to get establish and stay afloat through the slow
However, these obligations such as including pre-issuance financial statement disclosures that must be certified or independently audited, can incur significant costs for issuers. These incurred regulatory and administrative costs make crowdfunding an untenable pursuit for many emerging businesses; especially those businesses seeking to raise small amounts of capital. Limited access to seed capital is one of the most common barriers to entrepreneurship in the U.S. As such, a crowdfunding framework that imposes cost prohibitive administrative and regulatory requirements on lower-level capital formation is quite counterproductive.
On December 9, 1998, Elena King contemplated her first investment as a hedge fund manager. In only a few months, Elena had raised $20 million for her new fund, Strategic Capital Management, and was looking forward to putting the money to work. Based on recent comments by high-profile analysts such as Henry Blodgett of Merrill Lynch and Mary Meeker of Morgan Stanley, Elena thought that the Internet sector provided excellent prospects for lucrative investments. She was specifically interested in a recent initial public offering (IPO) by Ubid, an Internet auction firm.
The Venrock/BVP offer an inside round at 98.5¢ per share. The pre-money was roughly $25 million. They would share the $10 million, with Venrock taking more to increase its ownership, and leave the round open for another $5 million, getting the deal done at $15 million with an option to close as high as $18 million.
To support their growth and offset portfolio losses by their venture capital investors, management was ready to raise additional capital through a public equity offering.
Jeff raised a million dollars to finance the company through twenty-two angel investors, whom consisted of family, friends, and former colleagues.
Another issue was the finance from the conventional sources which were reluctant to invest. They would need at least £235,000 to add to their own invest of £45,000 to cover the costs and operational losses for 12 months period. But, if it works out, then they would at £1 million profit by year five. Despite their enthusiasm and impressive CVs, the business angels deterred by their lack of experience in this market sector. However, they managed to get an appointment with Maurice Pinto, a private investor, who agreed to invest £235,000 for a 20 percent share in the company.
One more round of funding by Info Edge, Sequoia and Vy Capital was incorporated for Zomato for a USD 50 million. Followed by this, Temasek, a government-owned investment company based in Singapore led Zomato raise USD 60 million. Along with Vy Capital.
Baosteel and Posco : Each company agreedto invest US125 million to acquire a stake in the other, with this stake being less than 0,5 %