Who does not want to be successful? But, we often hear that success comes to those who wait, patiently. Or, the slow and steady wins the race.
In this fast-paced world, do we really have so much time to simply wait, while we see our ventures unfold and make us successful?
If the answer is a resounding ‘no’ then we have got you covered.
Startups build huge wealth in a short span of time. Their secret of success has been explained below.
Ideation
The most important thing for success is to have an idea that has the potential of gathering investors. Although the primary idea undergoes a lot of change by the time it is to be finalised, still, it is of great importance.
When the idea is shared with primary supporters who are usually friends and family, it gets monetary and other service boost ups.
To remain professional, promoter at this stage want to incorporate their business. In India, such companies’ names end with ‘Limited’ or ‘Private Limited’ and in the US, it ends with Inc. These companies have a broader scope and can issue shares.They are made to function under robust compliance and this makes investing in them safe.
The promoters can fix the initial shareholding pattern, before the incorporation. If the shares are divided tactfully, the values of the shares of the promoters can be a huge amount. And all this might happen even before the company is doing any business. The funding offered at this stage is known as seed funding.
Funding
After the initial phase of development, the companies seek out funds that would help the company become larger. This is the phase when the entrepreneurs would be selling their product/service to the investors.
Venture capital firms and (or) angel investors come into the picture.The funds raised are used for hiring trained and dedicated employees and other resources.
Capabilities of the team will also be judged before the investments take place.
Unlike the seed funding round, the sharing of the investment will be done keeping in mind the pre and post funding valuation of the company.
The promoters rally for pre money valuation whereas the investors look for post money valuation.
This leads to a rise in the valuation of the shares for the investors as well as the promoters. A company can increase their share capital to accommodating new investors. However, it is subject to several rules and regulations too.
Exit strategies for the promoters
As the company reaches new heights, it can raise new series of funding after series A. With every round, the valuation of the shares of the promoters as well as the investors increase. However, the promoters may choose to leave the business by selling off their shares.
Promoters could be selling their shares to other big companies or via an initial public offering (IPO). This would be enable them to raise the money.
Selling the shares through an IPO will be done through stock exchanges. But the value of the shares of the company would not be based on the fluctuations of the stock market but on the demand and availability of the shares, which in turn depends on the financial performance of the company.
These simple steps show us how the shares held by the promoters increase manifold since the seed round, without them having invested a single penny. This is how startups help an entrepreneur to earn in billions.
Also Read: Top Things Angel Investors Look For In Startups Before They Decide To Invest
