12 Private equity: Investing in startups

 

This chapter covers

  • How to invest in startups
  • A startup’s evolution from pre-seed to Series C
  • Differences between venture funds, angel syndicates, and sovereign wealth funds
  • How to address valuation, dilution, and scoring

Many programmers contemplate starting a startup at some point. Even if you haven’t considered creating one, you’ve likely had friends who have. Ambitious development teams can produce impressive products with minimal upfront costs, especially when working without salaries, but eventually, finances become a critical topic of discussion.

Working purely for equity, however, isn't always enough to create a product. Some team members require immediate cash flow to meet living expenses, necessitating salaries or invoicing for their contributions. While cloud providers may offer attractive starter packages, they typically don't provide unlimited free resources. Additionally, acquiring and servicing clients incurs extra costs.

12.1 From idea to IPO

12.1.1 The first MVP (pre-seed)

12.1.2 Validating the business model (seed)

12.1.3 Scaling a startup: The shift to institutional investment

12.1.4 Exits: the final transition

12.2 Investment vehicles

12.2.1 Venture capital

12.2.2 Angel networks

12.2.3 Sovereign wealth funds

12.3 Assessing startups

12.3.1 Valuation

12.3.2 Dilution

12.3.3 Scoring

12.4 Summary