About 1,500 new companies are founded every day.
However, only a fraction of these entrepreneurial pursuits will eventually operate on a grand scale. With many of these companies propelled by venture capital funding, how do investors provide the cash—and get a piece of the startup pie?
Pie in the Sky
Today’s creative infographic from Fundera uses pie to visualize each stage of startup funding, from pre-seed funding to initial public offering.
It’s worth noting that numbers presented here are hypothetical in nature, and that startups can have all kinds of paths to success (or failure).
In the pre-seed funding round, the founder(s) pitch their business idea to potential investors. These are typically friends, family, angel investors, or pre-seed venture capital firms.
Since there is likely no performance data or positive financials to show yet, potential investors must focus on two primary features: the strength of the idea and the team.
The biggest factor in our decision-making is always the founding team […] that’s what success lives or dies on in this industry: the ability for founders to make really quick, good decisions.
At this stage, both the level of risk and potential payoff are at their highest.
After the initial stages, seed funding—the first official funding round for many companies—takes place. Entrepreneurs use the funds for market testing, product development, and bringing operations up to speed.
By this point, investors are generally looking for the company’s ability to solve a need for customers in a way that will achieve product-market fit. At this stage, ideally there is also some level of traction or consumer adoption, such as user or revenue growth. The level of risk is still quite high here, so investors tend to be angel investors or venture capitalists.
In each series funding, the startup generally raises more money and increases their valuation. Here’s what investors tend to expect in each round:
- Series A: Companies that not only have a great idea, but a strategy for creating long-term profit.
- Series B: Companies generating consistent revenue that must scale to meet growing demand.
- Series C (and beyond): Companies with strong financial performance that are looking to expand to new markets, develop new products, buy out businesses, or prepare for an Initial Public Offering (IPO).
Private equity firms and investment bankers are attracted to series C funding as it tends to be much less risky. In recent years, startups have been staying private longer. For example, Uber obtained Series G funding and debt financing before going public.
Initial Public Offering
Once a company is large and stable enough, it may choose to go public. An investment bank will commit to selling a certain amount of shares for a certain amount of money.
If the IPO goes well, investors will profit and the company’s reputation gets a boost—but if it doesn’t, investors lose money and the company’s reputation takes a hit.
Here’s how the example investment amounts break down at each stage:
|Pre-Seed||Seed||Series A||Series B||Series C||IPO|
|Amount Invested||< $1M||<$1.7M||<$10.5M||<$24.9M||<$50M||<$10.5M|
|Average Equity Stake||10-15%||10-25%||15-50%||15-30%||15-30%||15-50%|
An investor’s equity is diluted as other investors come on board, but their “piece of the pie” usually becomes more valuable.
The Venture Capital Funnel
How likely is it that a startup makes its way through the entire process? In a study of over 1,110 U.S. seed tech companies, only 30% exited through an IPO, merger, or acquisition (M&A).
Companies that reach a private valuation of $1B or more, known as unicorns, are even more rare at just 1%.
At each stage, natural selection takes hold with fewer companies advancing. Here’s a look at the entire funnel, with the “second round” generally corresponding to a series A stage, a “third round” generally corresponding to a series B stage, and so on.
Source: CB Insights
Notably, 67% of the companies stalled out at some point in the funding process, becoming either dead or self-sustaining. While startups carry a high degree of risk, they also present opportunities for substantial rewards.
Companies Going Public in 2021: Visualizing IPO Valuations
Tracking the companies that have gone public in 2021 so far, their valuation, and how they did it.
Companies Going Public in 2021: Visualizing Valuations
The beginning of the year has been a productive one for global markets, and companies going public in 2021 have benefited.
From much-hyped tech initial public offerings (IPOs) to food and healthcare services, many companies with already large followings have gone public this year. Some were supposed to go public in 2020 but got delayed due to the pandemic, and others saw the opportunity to take advantage of a strong current market.
This graphic measures 47 companies that have gone public just past the first half of 2021 (from January to July)— including IPOs, SPACs, and Direct Listings—as well as their subsequent valuations after listing.
Who’s Gone Public in 2021 So Far?
Historically, companies that wanted to go public employed one main method above others: the initial public offering (IPO).
But companies going public today readily choose from one of three different options, depending on market situations, associated costs, and shareholder preference:
- Initial Public Offering (IPO): A private company creates new shares which are underwritten by a financial organization and sold to the public.
- Special Purpose Acquisition Company (SPAC): A separate company with no operations is created strictly to raise capital to acquire the company going public. SPACs are the fastest method of going public, and have become popular in recent years.
- Direct Listing: A private company enters a market with only existing, outstanding shares being traded and no new shares created. The cost is lower than that of an IPO, since no fees need to be paid for underwriting.
So far, the majority of companies going public in 2021 have chosen the IPO route, but some of the biggest valuations have resulted from direct listings.
|Listing Date||Company||Valuation ($B)||Listing Type|
|21-Jan-21||Hims and Hers Health||$1.6||SPAC|
|05-May-21||The Honest Company||$1.4||IPO|
|07-May-21||Blade Air Mobility||$0.83||SPAC|
Though there are many well-known names in the list, one of the biggest through lines continues to be the importance of tech.
A majority of 2021’s newly public companies have been in tech, including multiple mobile apps, websites, and online services. The two biggest IPOs so far were South Korea’s Coupang, an online marketplace valued at $60 billion after going public, and China’s ride-hailing app Didi Chuxing, the year’s largest post-IPO valuation at $73 billion.
And there were many apps and services going public through other means as well. Gaming company Roblox went public through a direct listing, earning a valuation of $30 billion, and cryptocurrency platform Coinbase has earned the year’s largest valuation so far, with an $86 billion valuation following its direct listing.
Big Companies Going Public in Late 2021
As with every year, some of the biggest companies going public are lined up for the later half.
Tech will continue to be the talk of the markets. Payment processing firm Stripe is setting up to be the year’s biggest IPO with an estimated valuation of $95 billion, and now-notorious trading platform Robinhood is looking to go public with an estimated valuation of $12 billion.
But other big players are lined up to capture hot market sentiments as well.
Electric truck startup Rivian Automotive (backed by Amazon) is estimated to earn a public valuation around $70 billion, which would make it one of the world’s largest automakers by market cap. Likewise, online grocery delivery platform InstaCart, which saw a big upswing in traction due to the pandemic, is looking at an estimated valuation of at least $39 billion.
Of course, there’s always a chance that potential public listings and offerings fall through. Whether they get delayed due to weak market conditions or cancelled at the last minute, anything can happen when it comes to public markets.
This post will be periodically updated throughout the year.
Which Country is the Cheapest for Starting a Business?
These maps show the most (and least) costly countries for starting a business by relative costs.
Which Country is the Cheapest for Starting A Business?
Starting a new business isn’t as simple as coming up with an idea.
In addition to the time investment needed to formulate and create a business, there’s often a hefty capital requirement. A new business usually requires paying different fees for licensing, permits, and approvals, and many governments also have minimum on-hand capital requirements.
And costs are relative. Though it might be more costly to start a business in some countries on paper, affordability also takes into account relative income.
These graphics from BusinessFinancing.co.uk use data from the World Bank’s Doing Business 2020 report to examine the startup cost for a small-to-medium-size LLC in the largest business cities across 190 countries.
The Cost of Starting a Business in Different Countries
From a pure cost perspective, the affordability of starting a business is extremely dependent on where you are located.
Some countries make the cost of business extremely low to encourage more economic activity. Others have high or nearly inaccessible fees to protect existing businesses, or to simply cash in on the entrepreneurial spirit.
|Country||Cost (2020 USD)||% of Monthly Income|
|Congo (Democratic Republic of the)||80||2.39|
|Trinidad and Tobago||115||0.1|
|Micronesia, Federated States of||231||0.82|
|Papua New Guinea||459||2.71|
|Central African Republic||529||14.55|
|United States of America||725||0.16|
|Bosnia and Herzegovina||833||1.93|
|Congo (Republic of the)||1229||25.46|
|Antigua and Barbuda||1271||-%|
|United Arab Emirates||7444||2.23|
At a glance, the cheapest regions for starting a business include Central Asia and Africa.
But the cheapest countries on the dollar for a new startup are Venezuela, Rwanda, and Slovenia. While the former does have fees that only total $0.21, both Rwanda and Slovenia have no fees for new businesses, though Slovenia does have a capital requirement of €7,500.
Expensive countries for new businesses are also spread across the world. There are some in Europe, including Italy at $4,876 and Austria at $2,475, as well as the Americas, including Suriname at $3,030 and Ecuador at $1,630.
The most expensive countries, however, are largely in the Middle East. They include #1 UAE at $7,444, #4 Qatar at $3,952, and #6 Lebanon at $2,855.
Which Country is the Most Affordable for Starting a Business?
Just as costs vary by country, so too does relative affordability.
Though some countries are cheaper than others for starting a business on the dollar, the picture changes when accounting for monthly income. When it comes to the cost of starting a business relative to monthly income, many developed countries take the cake.
Not including countries with missing data, the most affordable countries for starting a business include the UK, Denmark, and Ireland in Europe, South Korea in East Asia, and New Zealand in Oceania. Startup costs in each range from just 1%-2% of monthly income.
The picture is similar in the Americas, where Chile and Canada have the lowest relative fees at 2% and 5% of monthly income respectively. Even the U.S.—which has a decently high cost of $725 for starting a business—is relatively affordable at 16% of monthly income.
Some of the least affordable countries lie in the Middle-East and Central America. Haiti and Suriname have startup costs that are 1,403% and 1,114% of monthly income, while Yemen has affordability rates of 1,070%.
But the least affordable countries are in Africa. Many countries on the continent have startup costs that are more than 100% of monthly income, but the Republic of the Congo and the Central African Republic have affordability rates of 2,546% and 1,455% of monthly income, respectively.
Where is the best place to start a business? It can depend on the barrier to entry. But the biggest barrier takes time and ingenuity: finding the right idea at the right time.
Technology4 weeks ago
Mapped: The Fastest (and Slowest) Internet Speeds in the World
Misc3 hours ago
Animation: How the European Map Has Changed Over 2,400 Years
Personal Finance2 weeks ago
How Does Your Personality Type Affect Your Income?
Markets3 weeks ago
The World’s 100 Most Valuable Brands in 2021
Datastream3 weeks ago
Visualizing the Fastest Trains in the World
Markets1 week ago
The World’s Biggest Real Estate Bubbles in 2021
Misc3 weeks ago
A Visual Introduction to the Dwarf Planets in our Solar System
Money1 week ago
The Richest People in Human History, to the Industrial Revolution