Speaker 1: Welcome to Tech Stuff, a production from iHeartRadio. Hey there,
Speaker 1: and welcome to tech Stuff. I'm your host, Jonathan Strickland.
Speaker 1: I'm an executive producer with iHeartRadio. And how the tech
Speaker 1: are yet? You know, there's been an awful lot of
Speaker 1: talk about tech and money recently, whether we're talking about
Speaker 1: cryptocurrencies or the collapse of Silicon Valley Bank a SVB.
Speaker 1: Plus there's been talk about how the startup trend is
Speaker 1: kind of in a bit of a slowdown right now
Speaker 1: due to investors being a bit more cautious in order
Speaker 1: to protect their money in a time of economic uncertainty. Plus,
Speaker 1: you've got high interest rates on loans, which contribute to
Speaker 1: a desire to wait for things to improve before investment
Speaker 1: money starts flowing like wine once again. So I thought
Speaker 1: I would actually do a Tech Stuff Tidbits episode about
Speaker 1: the different types of funding in startups in general. But
Speaker 1: we are of course interested in tech startups because honestly,
Speaker 1: I find the stuff confusing at times, like how does
Speaker 1: an idea for a business end up getting the support
Speaker 1: it needs to actually become a thing? And I figure
Speaker 1: we can take this episode by talking about the various
Speaker 1: stages of funding that a startup will typically seek and
Speaker 1: what each of these stages means. So let's say you've
Speaker 1: got an idea for a new tech business. Maybe you
Speaker 1: plan to make an app that detects which spots in
Speaker 1: town are just on the verge of becoming trendy, so
Speaker 1: that your users can jump in and be super cool
Speaker 1: by going all Instagram on these spots before they blow
Speaker 1: up as trendy spots. So you could be a tastemaker.
Speaker 1: You know, you're really stylish, You're ahead of the curve,
Speaker 1: and it's all because you have the spidy Sense app
Speaker 1: that tells you win some place or object or thing
Speaker 1: or fashion or whatever is about to really take off.
Speaker 1: It's an idea, so dumb it can't fail anyway. You
Speaker 1: got this idea, But how do you actually turn this
Speaker 1: idea into a business. Well, you're gonna need some starting capital.
Speaker 1: Maybe you are limiting costs by doing the classic Silicon
Speaker 1: Valley story of launching out of a garage. Your initial
Speaker 1: offering might be built on top of your own computers. Well,
Speaker 1: that's not going to work for very long, because assuming
Speaker 1: your idea actually does catch on, you're gonna need way
Speaker 1: more computer power and storage in order to scale your business. So,
Speaker 1: assuming you're not independently wealthy and willing to pour your
Speaker 1: own money into this venture, what do you do? Well,
Speaker 1: one thing you could do is apply at an incubator. So,
Speaker 1: an incubator is an organization designed to provide resources to
Speaker 1: fledgling startup businesses. There are different types of incubators out there.
Speaker 1: Some require a little more established business than others. Some incubators,
Speaker 1: if you come in with a great pitch, will bring
Speaker 1: you in even if all you have is an idea.
Speaker 1: Not many, but some will. And so you come in
Speaker 1: with this idea and you pitch it to the incubator,
Speaker 1: you go through the application process and they say, excellent,
Speaker 1: you can be one of the businesses that we incubate.
Speaker 1: So assuming that you do that, then you can get
Speaker 1: access to resources that can include stuff from office space
Speaker 1: to mentorship and classes, to networking as a building, connections
Speaker 1: with potential partners and investors and team members, that kind
Speaker 1: of networking. Usually the incubator takes some equity in your
Speaker 1: business as a result, so they have some ownership of
Speaker 1: your business, and the incubator often has input to some degree,
Speaker 1: sometimes a lot of input on the evolution of your
Speaker 1: business because the incubator is giving you access to these
Speaker 1: resources and in return, you are expected to make something
Speaker 1: out of your idea. But the only way you can
Speaker 1: do that is if you put the work in. So
Speaker 1: incubators are great resources for some types of startups because
Speaker 1: you can easily have a situation where you have folks
Speaker 1: who are really good at coming up with ideas right,
Speaker 1: or maybe they're really good at coding, like they're good
Speaker 1: at the building part, but maybe they have little to
Speaker 1: know business experience or expertise. They don't know how to
Speaker 1: start a business. They don't know how to run a
Speaker 1: business and keep it successful. They don't know what it
Speaker 1: takes in order to keep the lights on well. At
Speaker 1: an incubator, startups can learn the ins and outs of
Speaker 1: business itself. They can the foundation for what will be
Speaker 1: a company further down the line, So startups can start
Speaker 1: to learn how to do things like draft business plans
Speaker 1: and to form a team, both a team of people
Speaker 1: who are making the thing that you're offering and the
Speaker 1: team that oversees that. They can start to make out
Speaker 1: a hierarchy plan for their organization. All this kind of
Speaker 1: stuff that is required for a business to have the
Speaker 1: best chance to succeed. Now, it's not that every startup
Speaker 1: has gone through this. There are some that have gone
Speaker 1: through a very haphazard approach and through all logic should
Speaker 1: have failed, but somehow didn't. But generally speaking, these are
Speaker 1: the sort of things you need to do if you
Speaker 1: want to have a good chance of being around for
Speaker 1: more than a couple of years. There are a few
Speaker 1: different kinds of incubators. As I mentioned, a lot of
Speaker 1: colleges have incubator organizations, so you might have student and
Speaker 1: or faculty taking on a really big part of running
Speaker 1: those operations. There are also corporate incubators. Google had one
Speaker 1: called Area one twenty, so once upon a time you
Speaker 1: probably have heard this. At some point, Google had this
Speaker 1: policy in place where employees were allowed to dedicate up
Speaker 1: to twenty percent of their work week to their own projects,
Speaker 1: with the one qualifier being that the projects should ideally
Speaker 1: be something that could potentially benefit Google if it pans
Speaker 1: out well. Area one twenty served as an incubator for
Speaker 1: projects that had a lot of promise and gave employees
Speaker 1: the resources they would need to further develop their ideas
Speaker 1: and potentially see the mature into a business of their own,
Speaker 1: so it wouldn't just become a Google product, it could
Speaker 1: potentially become a Google spinoff. Google, by the way, abandon
Speaker 1: the twenty percent time project back in twenty thirteen, so
Speaker 1: that is not a standing at Google anymore. They still
Speaker 1: do incubate businesses, but it's a slightly different approach now.
Speaker 1: Now similar to an incubator is an accelerator. So incubators
Speaker 1: help startups at the earliest stages of development, perhaps before
Speaker 1: there's even a business idea that has formed around a
Speaker 1: product or service idea, right, so it may be at
Speaker 1: the earliest stages of germination for a business, whereas an
Speaker 1: accelerator typically is for a startup that already has established
Speaker 1: the business part, at least the rudimentary elements of a
Speaker 1: business part. And so an accelerator takes a startup business and,
Speaker 1: as the name suggests, accelerates it on its way to
Speaker 1: scale up to becoming a larger business that it will
Speaker 1: need to be in order to be a success. Incubator,
Speaker 1: on the flip side, is a place to help develop
Speaker 1: and earth of business, but both incubators and accelerators helped
Speaker 1: startup companies find funding, and this kind of brings us
Speaker 1: to the first real round of getting capital for your business,
Speaker 1: which is called seed capital or seed funding. And this
Speaker 1: could happen before you get into an incubator, probably before
Speaker 1: you get into an accelerator, or it could be part
Speaker 1: of that process. Part of what the incubator is trying
Speaker 1: to help you do is to secure seed funding. This
Speaker 1: is the initial round of funding the startup needs in
Speaker 1: order to become a thing. It's what pays the bills
Speaker 1: and helps the startup establish the basics and start to
Speaker 1: do things like registered trademarks, you know, have an office space,
Speaker 1: make payroll for the initial group of employees while they
Speaker 1: further develop their idea. But it's the earliest, earliest stages.
Speaker 1: You're not necessarily doing business yet. You may not even
Speaker 1: be a publicly known entity yet. You might still be
Speaker 1: kind of a developing, in secret kind of company. Often
Speaker 1: seed funding comes from people who are close to the
Speaker 1: folks who are behind the startup, So this could include
Speaker 1: friends and family, former or current employers, that kind of thing.
Speaker 1: And in return for providing some of the seed capital
Speaker 1: for the business, the investor receives some equity or percentage
Speaker 1: of ownership of that business. So if the business succeeds,
Speaker 1: there will be an eventual payout, But it's entirely possible
Speaker 1: that seed capital investors are supporting a startup not because
Speaker 1: they're hoping to get a big payoff down the line,
Speaker 1: but rather they believe in the people behind the project
Speaker 1: and they want to support them. So it's important because
Speaker 1: a lot of these startups they fail. More than half
Speaker 1: the vast majority of startups do not succeed. So often
Speaker 1: we're talking about people who are taking on a financial
Speaker 1: risk because they believe in the people behind it or
Speaker 1: they want to s support them. Also, we're typically talking
Speaker 1: about pretty modest amounts of money in the long term,
Speaker 1: Like later on, when we're talking about Series ABC funding,
Speaker 1: you're talking about the tens of millions of dollars or more.
Speaker 1: Now we're talking about, you know, maybe hundreds of thousands
Speaker 1: of dollars, which is still a lot of money, but
Speaker 1: in the grand scheme of things, is much much smaller. Now.
Speaker 1: Seat capital provides funding that otherwise would be off limits
Speaker 1: to a startup. I've talked about in episodes that I
Speaker 1: mentioned with Silicon Valley Bank that it's really hard for
Speaker 1: startup businesses to secure like a business loan because they
Speaker 1: might not have anything they can put up as collateral.
Speaker 1: They might not have any track record they can point
Speaker 1: to as showing their ability to make a successful business.
Speaker 1: The business itself might not really exist yet. There might
Speaker 1: not be an easy way to explain where revenue is
Speaker 1: going to come from. They may not be able to
Speaker 1: generate any revenue for a while, So the loan can
Speaker 1: be seen as being too risky, and seed capital can
Speaker 1: end up taking over that spot, because I mean, where
Speaker 1: else are you going to get the money to get started?
Speaker 1: And really it's usually just enough to establish the earliest
Speaker 1: days of the business so that the founders can actually
Speaker 1: seek additional investment. So you can almost think of it
Speaker 1: as the money that a business needs in order to
Speaker 1: get seen by the next level of investors. And we'll
Speaker 1: talk about them after we come back from this quick break,
Speaker 1: all right, Before I move on to venture capital funds,
Speaker 1: because that's ultimately where we're headed for this next bit
Speaker 1: of the discussion. There is one kind of special early
Speaker 1: investor that I could mention at this stage. Investors who
Speaker 1: typically can step in at the seed funding phase or
Speaker 1: perhaps the next one, and that is the angel investor.
Speaker 1: So an angel investor is usually a high net worth
Speaker 1: individual h and WI. It's someone who has a lot
Speaker 1: of liquid assets at their disposal. That's a way of saying,
Speaker 1: if someone's got a whole lot of cash they can
Speaker 1: throw around, or at least it's someone who could very
Speaker 1: quickly get hold of a mountain of cash that they
Speaker 1: could throw around. Angel investors sometimes provide seed money to startups.
Speaker 1: If the amount is less than a million dollars, then
Speaker 1: they may just loan the money to the startup and
Speaker 1: the startup will pay back the angel investor with interest
Speaker 1: on top of the loan at some later date, assuming
Speaker 1: that you know they have the money to do that.
Speaker 1: But if it's more than a million dollars, angel investors
Speaker 1: typically will take a stake in the company. They will
Speaker 1: take part ownership of that company, and then they know
Speaker 1: they typically have a lot more say in how things
Speaker 1: develop from there. So as a founder, you have to
Speaker 1: start making these decisions of how much control do I
Speaker 1: want to seed to the people who will give me
Speaker 1: the money that lets me pursue my dream. And it's
Speaker 1: a difficult question to answer. It's really up to the individual.
Speaker 1: Angel investors take on a huge amount of risk. Like
Speaker 1: I said, the majority of startups will fail within five years.
Speaker 1: Only a few ever developed beyond being a small business
Speaker 1: and reach a point where they can hold their own
Speaker 1: initial public offering or IPO, or they get snapped up
Speaker 1: by some bigger companies. So angel investors and other seed
Speaker 1: capital investors are pouring money into something that statistically is
Speaker 1: kind of a long shot. Some angel investors actually band
Speaker 1: together to create angel networks. This spreads the risk out
Speaker 1: across a group of people. It also allows them to
Speaker 1: pool resources, so you're not pouring as much of your
Speaker 1: money into individual investments. You know, it's part of a
Speaker 1: pool of money that other people are contributing toward. It
Speaker 1: also means that you're dividing up the equity you have
Speaker 1: in that business. But you know, the lower risk means that, yeah,
Speaker 1: maybe you are investing money into stuff you believe in,
Speaker 1: but you're not going to see that money come back,
Speaker 1: but maybe it'll be slightly less than if you were
Speaker 1: just going in by yourself. All right, So the startup
Speaker 1: receives the seed funding, maybe it's an incubator with the
Speaker 1: founders learning how to structure and run a business. On
Speaker 1: top of receiving the resources they need to develop their idea. Further,
Speaker 1: whatever the case, they are now ready to attempt to
Speaker 1: secure a loan, which they might also do later in
Speaker 1: the structure. So like loans typically don't really become a
Speaker 1: thing until you're past the seed funding stage at least,
Speaker 1: and usually it's after you've done Series A or maybe
Speaker 1: even Series B funding, or you instead of looking for
Speaker 1: a loan, you face venture capital investors, or maybe you
Speaker 1: do both. So Silicon Valley Bank would be an example
Speaker 1: of a financial institution that used to take a chance
Speaker 1: on tech startups before the bank collapsed, so they were
Speaker 1: known to offer loans to businesses when other more established
Speaker 1: banks wouldn't. And you know, tech investors would also turn
Speaker 1: to SVB to take out loans in order to invest
Speaker 1: money into startups. So SBB played a very important part
Speaker 1: in the early stages of funding for tech startup companies.
Speaker 1: Sometimes it would be actually after Series A, so we'll
Speaker 1: get to that in a second. Let's talk about venture
Speaker 1: capital investors. These are groups of private investors who you know,
Speaker 1: it could be a single person, but it's usually a
Speaker 1: company that has a bunch of people as their clients
Speaker 1: who contribute money to the venture capital firm that then
Speaker 1: uses that money to invest in various startups and jump
Speaker 1: in after seed funding. The venture capital investors out there,
Speaker 1: many of whom our long time players in the financial world,
Speaker 1: are the ones who pour significant money into a startup.
Speaker 1: We're talking about the tens of millions in some cases,
Speaker 1: or you know, obviously you have things like unicorns where
Speaker 1: you're talking about crazy amounts of money being poured into
Speaker 1: a startup. The funding is intended to really accomplish two goals.
Speaker 1: One for the investors. Ideally it will represent a return
Speaker 1: on investment at some point where you will make more
Speaker 1: money than what you put in at some point further
Speaker 1: down the line, assuming that things go well. But the
Speaker 1: other thing it's meant to do is to provide the
Speaker 1: startup the support it needs to get on a path
Speaker 1: toward that success, to further establish the business, to allow
Speaker 1: it to grow and to scale so that it can
Speaker 1: start to really become a success, to attract the talent
Speaker 1: it needs, to produce whatever the product or services at
Speaker 1: a level that is sustainable and profitable, and hopefully reach
Speaker 1: a point where the company can have a big payout
Speaker 1: to its investors, which could come in the form of
Speaker 1: an initial public offering that is the company goes from
Speaker 1: privately held to a publicly traded company, or it gets
Speaker 1: acquired or merged with another company, and in that process
Speaker 1: there's a transfer of money that ends up being a
Speaker 1: big payout to the early investors. In either case, the
Speaker 1: investors end up getting back their investment plus a healthy
Speaker 1: return on top of it. It may not be in
Speaker 1: the form of cash with initial public offerings, it might
Speaker 1: be in the form of additional shares of the company.
Speaker 1: Venture capital companies are also betting on long shots, but
Speaker 1: the general ideas that while most startups do ultimately fail,
Speaker 1: some will succeed, and if you're really wise with your
Speaker 1: investments and you have a wide enough spread of those investments,
Speaker 1: then hopefully the successes will more than make up for
Speaker 1: the failures. If you lose a million dollars on startups
Speaker 1: that ultimately fizzle out, but you make ten million dollars
Speaker 1: on the one that went to the moon, well you
Speaker 1: could say that it all paid for itself at the end, right,
Speaker 1: like you made a huge profit. That's not how it
Speaker 1: always works out, but that's how the game is played now.
Speaker 1: Startups might seek multiple rounds of venture capital funding. They
Speaker 1: typically do. It is typically required before a business can
Speaker 1: really establish itself to a point where it can really
Speaker 1: become a success. So the first round, usually called Series
Speaker 1: A funding might happen when the startup is still kind
Speaker 1: of figuring out its place in the world. Part of
Speaker 1: what determines the funding rounds is that venture capitalists try
Speaker 1: to figure out a valuation for the company. Valuation essentially
Speaker 1: means how much is that company really worth? And worth
Speaker 1: is It's a subjective thing. There are actually different ways
Speaker 1: that you can come at a valuation for a company,
Speaker 1: and it's not necessarily that one way is better or
Speaker 1: more legitimate than another. It all depends upon your perspective
Speaker 1: and the point that you take, the approach you take,
Speaker 1: But it typically involves things like figuring out like how
Speaker 1: experienced is the team in charge. If it's a team
Speaker 1: that has a series of wins in its past, that's
Speaker 1: going to add to the value the perceived value at
Speaker 1: least of the company. How good is its business plan?
Speaker 1: What assets does the company have at its disposal? These
Speaker 1: are all different questions that kind of contribute to it,
Speaker 1: and then ultimately the investment community figures out, well, we
Speaker 1: estimate that the value of this company is x amount
Speaker 1: so that's what the investments kind of reflect. The investments
Speaker 1: reflect the perceived value, like what is the future of
Speaker 1: this company, what could it be worth five years down
Speaker 1: the road, And that ends up informing investors. It's not
Speaker 1: always right. There are a lot of companies that end up,
Speaker 1: in hindsight, having been highly overvalued and investors board way
Speaker 1: too much money in that. Again, with hindsight, you could say, man,
Speaker 1: there was just never any chance that that business was
Speaker 1: going to realize the value that was poured into it.
Speaker 1: Like if someone's poured a billion dollars into a company
Speaker 1: and there's just no way that that company is ever
Speaker 1: going to be a true billion dollar company in the
Speaker 1: sense of it it's really worth a billion dollars, Well,
Speaker 1: that's a big loss. It also means that you're inflating
Speaker 1: a economic bubble, and if that bubble ever deflates or pops,
Speaker 1: then you're going to see a huge collapse. We saw
Speaker 1: this with the dot com bubble, and you know, you
Speaker 1: could argue that we've saw it or we're seeing it now,
Speaker 1: like we're seeing the deflating part now, But that's more
Speaker 1: complicated because it involves other economic issues as well. Anyway,
Speaker 1: when you're going through Series A funding. As a business,
Speaker 1: you might actually still be trying to figure out things
Speaker 1: like basic stuff like, Yeah, I've come up with a
Speaker 1: product or service, but is there a market for that? Right?
Speaker 1: What is the market for this thing I'm creating? Is?
Speaker 1: Does one exist? If not, can I create that market?
Speaker 1: You know, if you have something that addresses a challenge
Speaker 1: or a problem, then that's one thing. Right. You could say, Hey,
Speaker 1: this thing I've created, it solves this problem you have,
Speaker 1: and it does it better than anything else out there. Well,
Speaker 1: then you say, okay, there is a market for this.
Speaker 1: The question then is how big is that market? But
Speaker 1: it might be a case where you say, the thing
Speaker 1: I have of solves a problem you didn't know you had,
Speaker 1: and maybe it really is a problem. Maybe it's just
Speaker 1: that you're doing something differently than you had before. Maybe
Speaker 1: the way you're doing it differently is better, or maybe
Speaker 1: it's not. Here's the crazy thing. The success for the
Speaker 1: business doesn't necessarily matter on whether or not the projects
Speaker 1: or service really is better than existing stuff. A company
Speaker 1: might succeed or fail completely independently of that. Because life
Speaker 1: is not fair. Okay, we're going to take another quick
Speaker 1: break when we come back, I'm going to wrap this
Speaker 1: up and talk a little bit more about the process
Speaker 1: of funding. Okay, So we were still talking about series
Speaker 1: A funding, where venture capital companies come in. So typically
Speaker 1: you might have a single venture capital company acting as
Speaker 1: an anchor here, and maybe a few other venture capitalists
Speaker 1: come in and also invest in a Series A round.
Speaker 1: Series A rounds typically are not ginormous. They can be
Speaker 1: in rare occasions. For a while it seemed like that
Speaker 1: was just going to be the trend, but that was
Speaker 1: when people were getting real loosey goosey with their money.
Speaker 1: But often there it's not small because we're still talking
Speaker 1: in the tens of millions of dollars, but small lur
Speaker 1: Then subsequent rounds of funding would be so you hold
Speaker 1: your Series A funding and you typically have maybe one
Speaker 1: or two anchors that hold that down. And this is
Speaker 1: you usually don't see a lot of other like larger
Speaker 1: financial institutions jumping in at this stage. It typically is
Speaker 1: still venture capitalists because we're still talking about a pretty
Speaker 1: risky kind of investment. Some of those investments will have
Speaker 1: like a set amount of time on them when they're
Speaker 1: supposed to be paid off, and the startup will have
Speaker 1: to pay back that investment with whatever return on top
Speaker 1: of it was promised. But then there's usually more than
Speaker 1: one round of funding. Series A helps establish things, but
Speaker 1: it's not unusual to see a Series B round of funding.
Speaker 1: This is where you might see a couple more venture
Speaker 1: capitalist companies get involved. You still may not see that
Speaker 1: much from larger financial institutions at this stage, but it's
Speaker 1: if a company seems to have promise that it's on
Speaker 1: a forward momentum, then you might get a little bit
Speaker 1: more in the investment community pouring money into Series B.
Speaker 1: This typically is really focusing on scaling up a business
Speaker 1: and making sure that it can meet a global demand.
Speaker 1: Really important for tech companies, right, because a lot of
Speaker 1: tech companies digital company needs. They're not limited by geography, right.
Speaker 1: It's not like they're making a physical thing that they
Speaker 1: can only ship to certain places. They're making a digital
Speaker 1: product that at least in theory, could be accessed pretty
Speaker 1: much anywhere where you have a connection. You want to
Speaker 1: be able to scale your business so that you can
Speaker 1: meet the global demand, which means you've got to have
Speaker 1: access to all that compute power, storage power, all that
Speaker 1: kind of stuff in order to do that not have
Speaker 1: your service just crash whenever there's a spike in demand.
Speaker 1: So Series B is really typically focused on scaling a
Speaker 1: business up, but you can also have a third round,
Speaker 1: a Series C round of funding. At this stage you
Speaker 1: might start to see some larger financial institutions start to
Speaker 1: come on board if again the company looks like it's
Speaker 1: on the right track, that there is high hope that
Speaker 1: this is a company that is going to firmly establish itself.
Speaker 1: You can even have further rounds. You can have Series D,
Speaker 1: series etc. There's no real limit to how many rounds
Speaker 1: of funding a company could hold, except the limit being,
Speaker 1: you know, whatever the investment community is willing to do.
Speaker 1: If you're getting to a point where you're seeking, you know,
Speaker 1: the tenth round of funding, you might have investors saying,
Speaker 1: I don't think I'm ever going to get my money
Speaker 1: back if I pour it into here, because if you've
Speaker 1: taken this long to try and establish a business, it
Speaker 1: may just be there's no business to establish. So this
Speaker 1: is also a round Series B Series C where you
Speaker 1: start to see banks take a slightly more acceptable risk
Speaker 1: in loaning out money to these companies. So Silicon Valley
Speaker 1: bank might be more involved in something that's going through
Speaker 1: a Series B or Series C round. So then you
Speaker 1: have to talk about what these investors actually own. They
Speaker 1: might own debt, so in other words, they hold the
Speaker 1: debt that the startup has, and the startup needs to
Speaker 1: pay that debt back. So what you hold is an
Speaker 1: IOU and eventually the company is going to pay that
Speaker 1: IOU out to you, or you own equity in the
Speaker 1: company you own, you have some sort of ownership of
Speaker 1: the company itself. Now, with debt, you can actually buy
Speaker 1: and sell debt, right, you can sell your debt off
Speaker 1: to someone else. Maybe you sell it off at cost
Speaker 1: or maybe at slightly above cost, and the person who's
Speaker 1: buying it is hoping that the debt in fact does
Speaker 1: get paid out ultimately with whatever return there might be.
Speaker 1: And meanwhile you can walk away. You have sold off
Speaker 1: your debt that you held for this startup, and you've
Speaker 1: got your cash, and you can then invest it in
Speaker 1: something else if you like. But this gets outside the
Speaker 1: experience of the business itself, Like this sort of activity
Speaker 1: can happen around the business and it doesn't necessarily directly
Speaker 1: affect the business. So that's almost its own episode But
Speaker 1: then you're talking about what is the end goal of
Speaker 1: all of this, Well, I mean a couple. One is
Speaker 1: that the business actually becomes a revenue generating entity. But
Speaker 1: investors typically want to see one of two things happen.
Speaker 1: They want to see a privately held company become a
Speaker 1: publicly traded one through an IPO or initial public offering.
Speaker 1: This is when you go through the extensive process of
Speaker 1: having your company scrutinized to determine what the value is,
Speaker 1: you set a price for the shares and the number
Speaker 1: of shares that you're going to put out on the market,
Speaker 1: and you start selling shares to the general public. Investors
Speaker 1: at that point may get a big payout as a
Speaker 1: company goes public, or they, like I said before, maybe
Speaker 1: awarded with shares on top of whatever percentage they owned
Speaker 1: in the company as part of the equity they held,
Speaker 1: and that's like the big payout for investors, or one
Speaker 1: of them. The other, of course being when a bigger
Speaker 1: fish comes along and buys up a private company and
Speaker 1: as part of the acquisition price, there's a payout to
Speaker 1: all the investors, which again includes a return on top
Speaker 1: of the investment. Those are the two goals for the investors.
Speaker 1: And that's kind of why I get real cynical about
Speaker 1: the startup and investment communities, because I've seen a lot
Speaker 1: of startups that appear to exist only for the purpose
Speaker 1: of getting snapped up by some other company, and that
Speaker 1: strikes me as unsustainable in the long run, like it's
Speaker 1: not providing actual benefit. It might provide employment to people,
Speaker 1: which is good, right, but if no one ever figures
Speaker 1: out how to take the central premise of this business
Speaker 1: and make it into something meaningful beyond employing people, it
Speaker 1: starts to look like it's just hollow. To me. There
Speaker 1: are people who are really well known for being serial
Speaker 1: entrepreneurs who will come up with a business idea. They'll
Speaker 1: go through those early stages of getting seed funding and
Speaker 1: venture capital funding, grow the business to a certain point.
Speaker 1: Then they just want to bail and do it all
Speaker 1: over again. And the cynical part of me thinks that
Speaker 1: it might be because it's one thing to come up
Speaker 1: with an interesting idea and to get people excited enough
Speaker 1: in it to give you money, but it's another thing
Speaker 1: to grow that into a stable business that can continue
Speaker 1: to grow and to profit, and that the skill set
Speaker 1: for the person who's great at creating that initial germ
Speaker 1: of an idea and the person who's leading the big
Speaker 1: company and providing that stability. Those are two different skill sets,
Speaker 1: and not everyone has them, so I guess it's not
Speaker 1: necessarily a bad thing to be a serial entrepreneur. I mean,
Speaker 1: there can be some really great companies that grow out
Speaker 1: of that. But I don't know. There's something about Henry
Speaker 1: Higgins music man huckster stuff going on in that world.
Speaker 1: Not everyone is a huckster, obviously, but it feels a
Speaker 1: bit like the fast talking salesman who is setting up
Speaker 1: a big sale and then bailing out of the town
Speaker 1: before having to pay the piper. I'm using a lot
Speaker 1: of different metaphors here and then doing it all over again.
Speaker 1: I don't know. Maybe I'm just thinking like music man
Speaker 1: slash Doc Terminus from the original Pete s Dragon or whatever.
Speaker 1: In my head, that's what every single startup founder is like.
Speaker 1: They're they're dressed in a equated outfits and doing fast
Speaker 1: talking pattern songs. Probably not how it actually pans out,
Speaker 1: but I'm okay living in that fantasy anyway. I thought
Speaker 1: it would be interesting to talk about this because the
Speaker 1: way that this world works is important. It has has
Speaker 1: shaped the tech industry significantly since the nineteen eighties at least,
Speaker 1: and I think it helps us understand where we are
Speaker 1: now and how the products that come to us, how
Speaker 1: those were able to exist, how they were able to
Speaker 1: get to a point where we could actually see and
Speaker 1: use them in the startup world obviously, I mean, it's
Speaker 1: a totally different story for long established companies that are
Speaker 1: you know, their own foundational pillars in the tech industry,
Speaker 1: like your intels and your ibms and your you know,
Speaker 1: AT and ts and whatnot. But yeah, I kind of
Speaker 1: wanted to to look this over. I think it's an
Speaker 1: interesting way to get some insight into this and understand
Speaker 1: some of the issues going on within the tech sector.
Speaker 1: All Right, that's it for this Tech Stuff Tidbits episode.
Speaker 1: Hope you are all well, and I'll talk to you
Speaker 1: again really soon. Tech Stuff is an iHeartRadio production. For
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