I Hear Startups Raising 10 Million 20 Million As Seed Capital After Getting This Money What Happens

I want to know about startups, I hear startups raising 10 million 20 million as seed capital, after getting this money what do the investor get in return, who has access to this money, can the company owner take this money and run away?

What do investors get in return?
When startups raise seed capital, investors typically receive equity in the company. This means they get a percentage of ownership in exchange for their investment. The exact amount of equity varies, but it's often around 20-25% for seed funding rounds.

Who has access to the money?
The funds raised are usually placed into a company bank account and are managed by the startup's founders and financial officers. Investors do not directly control the money; they trust the startup's management to use it effectively to grow the business.

Can the company owner take the money and run away?
In theory, yes, but in practice, it's much more complicated. Investors conduct due diligence before investing, which includes evaluating the founders' backgrounds and the startup's potential. Additionally, the startup's board of directors (which often includes investor representatives) oversees the company's operations and financial decisions. Misuse of funds can lead to legal consequences and damage the founders' reputation, making it difficult to raise future funds.

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In order to give equity, company has to make lot of sales and has to be profitable right?
Not necessarily. In fact, many startups raise capital well before they become profitable. Here's the deal: Investors are betting on the future potential of the startup. They're looking at the vision, the market opportunity, the team, and the technology. The idea is that the company's value will grow significantly over time, and the investors' equity will be worth much more in the future. Early-stage startups often don't have significant sales, and profitability might be years away. The focus is usually on growth, customer acquisition, and product development. Investors are essentially taking a risk, hoping for a big return when the company either goes public or gets acquired. So, it’s not about current profitability but potential for massive growth. Does that make sense?

So if there is no sales then how is the expenses managed like salary, office rental, internet, hosting and services and other bills?
When a startup raises capital, especially in early rounds like seed funding, the money is used to cover those exact expenses: salaries, office space, technology, hosting services, and other operational costs. This funding acts as the lifeblood for the company while it works towards building a product, gaining users, and eventually generating revenue.

The idea is that this capital injection helps the startup grow and reach milestones that will make it attractive for further investment, potential acquisition, or an initial public offering (IPO).

Would you say you're more interested in how startups manage their growth or more on the investor's side? I want to know both - startups manage their growth and more on the investor's side?

How Startups Manage Their Growth:
Use of Capital: Startups use the capital raised to cover expenses like salaries, office rental, technology infrastructure, marketing, and product development. This funding allows the company to focus on growing and scaling without the immediate pressure of generating revenue.

Milestone Targets: Startups set clear milestones that demonstrate progress and growth potential. These could include launching a product, reaching a certain number of users, generating initial revenue, or entering new markets.

Product Development: A significant part of the budget is allocated to product development. This includes hiring developers, designers, and product managers to build and improve the product.

Marketing and Customer Acquisition: Funds are also used for marketing campaigns to attract new users and customers. This could include digital marketing, partnerships, and attending industry events.

Operational Efficiency: Startups continuously work on improving their operational efficiency. This involves optimizing processes, implementing technology solutions, and hiring the right talent.

From the Investor's Perspective:
Equity and Ownership: Investors receive equity in the startup, meaning they own a portion of the company. The value of this equity is tied to the company's future success.

Due Diligence: Before investing, investors conduct thorough due diligence. This includes evaluating the business model, market potential, financial health, and the team's capability to execute the plan.

Board Representation: Investors often gain a seat on the startup's board of directors, allowing them to provide guidance and oversight.

Return on Investment (ROI): Investors are looking for a significant return on their investment. This return could come from the startup being acquired, going public through an IPO, or reaching substantial profitability.

Risk and Reward: Investing in startups is high-risk but also high-reward. Many startups fail, but successful ones can generate enormous returns, often 10x or more the initial investment.

Exit Strategy: Investors have exit strategies in place, such as selling their equity during an acquisition or an IPO. This is when they realize their returns.

Startups are like a fast-moving roller coaster. It's a mix of strategic planning, risk-taking, and rapid execution. Investors back the ride, hoping for an exhilarating and profitable journey. What’s catching your interest the most here?

In Australia do you need to register company with ASIC. do you need to have ACN or can ABN holder do it to get funding?
Yes, in Australia, you need to register your company with the Australian Securities and Investments Commission (ASIC).
When you register a company, you will be issued an Australian Company Number (ACN), which is a unique 9-digit number that must be displayed on all company documents.

An Australian Business Number (ABN) is also required for all businesses operating in Australia, including companies. The ABN is an 11-digit number used for tax purposes and other business interactions with the government. Interestingly, the first nine digits of your ABN will be the same as your ACN.

So, to get funding, you would need to have both an ACN and an ABN. The ACN identifies your company, while the ABN is used for tax and other business purposes.