How Startup Funding Works (for founders)

I found the following infographic on Twitter, and this should help the hundreds of thousands of first time entrepreneurs better understand how their 100% turns into what looks like a tiny 17.6% and yet is how some of them will someday end up millionaires.

100% of an idea is worth $0
50% of an idea-stage company is still worth $0
37% of a fundable company is worth something. Not much, but not $0.
31% of an Angel-backed startup has some value. Not enough to retire, but far more than $0.
19% of a VC-backed startup has potential value. If it grows fast, meets its milestones, and succeeds at raising the next two or three or six rounds of venture capital.

What the infographic then exaggerates is how Series A then went straight to an IPO. That was the pattern back in the dot-com bubble. Here in the 2020s, IPOs are exceedingly rare and tend to take 10 years and at least five more rounds of funding and dilution.

Acquisitions are much more common, and when they happen, if they are not just an acquihire, then co-founders could still each own 17%, or 10%, or even just 5%. But 5% of $200,000,000 is $10 million, which is more than enough to be an Angel or to start a small seed fund, jumping to the bigger pie slices of these graphs.

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