Free How to Create the Next Facebook: Seeing Your Startup Through, From Idea to IPO by Tom Taulli Page B

private investors in an effort that proved critical to Facebook’s success. But how, exactly, do you go about securing seed funding? Do you just call up a wealthy friend and ask for an infusion of cash? In this chapter, we take a look at the different types of investors you might want to approach, the cycles of funding, and some helpful tips on timing your funding efforts.
Start up Lite
    The costs of starting up a company have declined substantially during the past few years, at least for those in the web and mobile app spaces. After all, most mobile or web products can be hosted, launched, and distributed easily andinexpensively on cloud services such as Amazon Web Services, thereby eliminating the hassle and potential expense of self-distribution. You can start easily with a small amount of storage and bandwidth, and, as your business begins to grow, pay for additional capacity as the need arises. This pay-as-you-go approach is the hallmark of cloud computing and makes life much easier for the startup entrepreneur.
    So, for the most part, then, the “cost” of a tech startup is the time it takes for the team to code the product. Your out-of-pocket expenses will likely be well under $25,000, much of which will go toward your company’s legal fees. This is in stark contrast to the dot-com boom of the 1990s, when it took $5 million to $10 million just to obtain vital components of tech infrastructure, such as Oracle databases, licenses to servers, and hardware. All of this is to say that although you may think you need to raise millions of dollars to launch and develop your product successfully, odds are that you will need far less capital than you might expect.
    If your product gains momentum, then you are in a much better position to pique the interest of investors whose cash infusions will help you scale your company, which means to accelerate the growth rate. You should also be able to get a better valuation on whatever funding deal you strike with them. Don’t think that you have to draft an executive summary or a business plan when you are still in the early stages of developing your product to draw in investors. Rather, focus on speed and on developing some critical features that will solve your customers’ problems. In many cases, success is the by-product of pursuing a project that solves a specific problem you have. As was mentioned in Chapter 3 , Zuckerberg created Facebook because he wanted a better way to connect with his school friends, and things turned out pretty well for him.
Know the Types of Investors That Are Out There
    If your product is getting traction in the marketplace, then the time has come to seek out investors. Keep in mind that there are many types of investors you can approach, each of which specializes in a specific phase of the financing cycle of a new company. Read on to learn about the main players.
Angels and Superangels
    Angel investors are those who invest their own money in early-stage ventures. For the most part, angels are wealthy and meet the U.S. Securities andExchange Commission’s requirements to act as accredited investors. In addition, many angels have started their own companies or are executives; so, as an added bonus, they often bring incredibly valuable business experience to a venture. Don’t be alarmed if you encounter angels who wish to make their investment in your company through a legal structure, such as a trust or an LLC. Angels use such structures because they lower taxes and provide liability protection, not because they’re trying to scam you.
    You may also talk to so-called superangels , or high-profile entrepreneurs, who carry a lot of clout within the startup community and become serial investors in early-stage ventures. It’s not unheard of for superangels to invest upward of $1 million in the ventures they decide to seed. In many cases, superangels invest money on behalf of other angel investors by creating a micro venture capital fund. Some examples