Startup 101
By Anni Chai
Have you ever thought about joining a startup? If you have, do you know how to pick one that’s the right fit for you? If you’re interested in learning more about startups, this article will be a very brief intro on how startups raise funds. I will also share a few personal tips on how to find opportunities at startups.
What is a startup?
Although there is no rule about what constitutes a startup, the term generally refers to companies that are in early stages of operation. Like most other tech companies, tech startups usually have a product or service that they want to develop for which they see opportunities in. Because there are operation costs to most businesses, and growth and revenue take time, many startups turn to venture capital for funding to help them get off the ground.
What is venture capital?
Capital, in this context, refers to money that is used to fund a startup to help with its costs before the business makes profit. Typical sources of capital that founders seek may include venture capital firms, banks, angel investors, and more.
Venture capital funds pool together investors’ money and invest it into startups that they see great potential in for an exchange of equity, in other words, a piece of ownership of the company. Some entrepreneurs prefer raising funds from venture capital because unlike bank loans, investors do not expect to be repaid by a deadline. What do venture capital funds or firms gain out of it? Well, startups and businesses fail more often than we’d think. According to Crunchbase data, at any funding stage, about 60%-80% of startups fail to raise capital for the following round. But for those startups who do go on to succeed, the rewards for investors are also significant. Many companies with products that we use daily such as DoorDash and Airbnb have all received their first round of funding through venture capital.
What are Series A/B/C Funding Stages?
Some of you may have come across LinkedIn job posts or news that mention how a startup is at Series A/B/C. What does that even mean? Earlier we talked about how startups need funding to get off the ground, but they don’t just magically receive a big check that they don’t have to pay back. Fundings come in rounds.
Seed round is usually the very first round of financing that a startup receives and that money doesn’t have to come from a VC. It is usually a modest sum that would cover the essential costs such as building out a prototype. A company in this stage is referred to as a “seed stage” company. After seed round, the startup may have a proof of concept that they can present to seek larger investments from other investors or venture capital firms. This stage is called Series A. As the business grows, startups may raise more rounds B, C, D and even E by demonstrating potential and competency.
Because only a very small fraction of startups make it to securing the next round of funding, knowing things like a startup’s funding stage, investors, amount of funding can give us some insights about the risks associated with joining a startup as well as how confident the investors are. Rule of thumb is startups at earlier stages are typically smaller in size and bear greater risks.
How do I get involved in the entrepreneurship/startup ecosystem at Cal?
Berkeley has a fantastic entrepreneurship ecosystem with amazing resources and networks to facilitate and support innovation. Just to name a few: The House Fund has has a venture fund and accelerator that help Berkeley founders build and receive capital. SkyDeck is another great resource for student founders. They also host startups fairs for anyone interested interested in joining a Berkeley startup. The Sutardja Center for Entrepreneurship and Technology offers classes in entrepreneurship and other programs for student projects. The list goes on. Check out https://startup.berkeley.edu/ for more!
How can I intern or work at a startup?
Another thing that venture capital firms provide to startups, on top of all the other things they offer is talent sourcing. Startups can face challenges when hiring because they don’t have a name out there yet, but their investors/venture capital do. Many VCs now offer student programs to tap into university talents.
Accel Scholars program is a partnership between Berkeley EECS and a venture capital firm called Accel. Many other VCs also have similar talent fellowships that match you with their portfolios aka startups they have invested in, such as the Kleiner Perkins, Bessemmer, Contrary, True Ventures, 8VC. Greylock is famous for the Greylock Techfair that it throws every summer. Y Combinator now offers an internship program as well. These programs are great ways to dip your toes into the startup waters while networking and gaining real world experiences.
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