WhatsApp's Road to 1 Billion Users & $19 Billion Exit
Discover the fascinating journey of WhatsApp to 1 billion users and its $19 billion exit. Learn from Jan Koum's interview and gain valuable insights...
Get to know the players and basic terminology.
✨Note: This post eventually led to the creation of The Holloway Guide to Raising Venture Capital, a 340-page resource for entrepreneurs, with technical detail, practical knowledge, real-world scenarios, and pitfalls to avoid. Get your copy here!
Whether you’re new to the startup world as a current or aspiring founder, you just got a job at a startup, or you can’t get enough of the HBO Silicon Valley series, the nomenclature of startups can be hard to digest.
Below, Josh Levy and I lay out detailed definitions of the players & basic terms in order to make the startup & fundraising worlds accessible to the 100% and the 100% topically ignorant.
Together, Josh and I have either founded or been early hires at companies that have collectively raised more than $100M, and we’ve drawn from a broad set of knowledge published in print or on the web. Remember that this is one small piece of a larger guide, eventually including all topics outlined here.
The Open Guide to Startup Fundraising is a work in progress and will eventually be published on GitHub in a format similar to The Open Guides to Amazon Web Services & Equity Compensation. Unlike a blog, it is living and can be improved. This is a preliminary version and no doubt has some errors and shortcomings, but we want to see it evolve.
1. Basic Terminology
2. Entrepreneurs
3. Angel Investors
4. Venture Capitalists
5. Accelerators
6. Incubators
7. Crowdfunding Platforms
8. Syndicates
9. Lawyers
We use the term “company” as a broad term to describe different types of legally registered business entities formed for the purpose of conducting trade.
In order to finance a company, founders sometimes sell part of their business in exchange for money or “capital” from investors. This is called fundraising.
In this guide, the terms entrepreneur and founder will be used interchangeably. Both terms refer to the individuals who start and run companies.
Venture capitalist or “VC” is a term used to refer to either a venture capital firm (“venture firm”) or the individual venture capitalists who work at firms.
🔹 The classification of venture firms by the stage they invest in is dynamic. For a few years, a firm could be a seed-stage firm, but then they might raise a larger fund and decide to invest in later stage companies.
🔹 If a firm describes themselves as “early stage,” it’s worth asking how many deals they have done in pre-seed, seed, and A in the last year to get an idea of where their sweet spot is.
🔹 Regardless of a fund’s size, a VC returns money to their investors. Understanding how VCs do that can help entrepreneurs understand why VCs do some of the things they do. If you’re curious, read both of these posts on VC fund economics by Fred Wilson at Union Square Ventures.
🌪 — VCs are a confident bunch, especially when it comes to telling you how helpful they’ll be. As of March 2016, CB Insights compiled an analysis of today’s top 100 individual VCs by considering investors’ exits, connectivity to other investors, consistency of investments by stage & industry, illiquid portfolio value, and recency of performance.
The term “accelerator” is used to describe early stage institutions that invest anywhere from $10k — $100k+ in exchange for 2–10% of the company. After being accepted through an application process, companies go in “batches” through the recurring program.
🌪 There are hundreds of accelerators out there that all flaunt the power of their networks, but the quality of these networks ranges drastically.
As of March of 2016 The Seed Accelerator Rankings Project has analyzed data on outcomes and named the following accelerators as “Platinum:”
The term “incubator” is a very broad term to describe institutions that offer some combination of office space, cash, and expertise. Some incubators offer these things in exchange for equity, some for a fee, and some for free.
🚧 — Crowdfunding platforms are websites that allow entrepreneurs to raise money from a large community. These platforms can be divided into three types: cash-for-support, cash-for-equity, and cash donation.
❗ Not all crowdfunding methods are created equal. Some platforms allow companies to raise money from unaccredited investors in line with SEC rules on Regulation Crowdfunding, which could lead to messy cap tables and other unintended consequences that could scare away downstream institutional investors.
The term “syndicates” has evolved to have multiple meanings in the fundraising ecosystem.
🔸 Having more than one firm involved with the company can have benefits and risks.
🔸 Every entrepreneur should make sure to get a lawyer with previous experience working with venture-backed startups. Do not give in to the temptation to use your college buddy, who is a defence attorney.
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