From Idea to IPO

Hey y’all — a startup is a journey.

And there’s little that’s more exciting than being able to take a company from zero-to-IPO, but not many of us actually get to do it.

So this week I wrote and recorded what that journey would be like, with a particular focus on the early tradeoffs founders have to make, and overcoming some of the challenge that pop up along the way and set your startup on the path to success.

Personally, I’d recommend the YouTube version — we animated most of it. Enjoy!

From Idea to IPO

It all starts with a problem.

You notice something is broken.

It’s painfully obvious.

Yet it still exists.

No one’s doing anything about it.

Why is no one doing anything about it???

Maybe they haven’t noticed.

Maybe they’re too busy.

You’re going to fix it.

The problem is your opportunity.

Can you do it?

…maybe.

You reach out to some people who have the problem.

You don’t hear back.

You reach out to some more and they reply.

This is great.

Wrong.

They don’t care about the problem.

You reach out to someone else.

They’re excited.

Finally.

They introduce you to some friends who care too.

You listen to them all.

How do they describe the problem?

Are there patterns?

Yes.

Now you know what to solve.

Time to get to work.

But wait — you need some help.

You don’t know how to do everything.

You tell a friend about the problem and your plan to solve it.

They want to help.

But they have a job already.

They can’t work for free.

How can you pay them when no one’s paying you to solve the problem yet?

Instead of cash, you offer them ownership of the company you’re going to form to solve the problem.

Since nothing’s built yet, you’re both taking the same risk.

You offer them half of the company if they’ll quit their job and go all-in on it with you.

But first you make sure they really care enough about the problem.

You talk about how solving it will need sleepless nights, personal sacrifices, and some good luck too.

You’re honest.

It might not work.

It will probably result in nothing at all.

But.

It might change the world.

And it might be incredibly valuable to own part of it.

Psst — the story’s more fun on YouTube:

They’re in.

You’re going to solve this together as co-founders.

You talk about who should have which job.

There should only be one CEO.

You pay $500 to set up the company on Stripe Atlas.

You choose a Delaware C Corp structure since you you’re going to need to raise money later.

In exchange, the company will have 10 million shares.

You each keep 4.5 million and will own 45% of the company.

You agree that you’ll only earn, or “vest” those shares over 4 years, with a 1 year “cliff.”

Everyone stays incentivized to earn more by working.

The last 10% gets saved for future employees.

A few days later, the government tells you your company exists.

You set up a Stripe payments account and Mercury bank account so you can start accepting money.

But first each of you put some money into the bank, and set aside $30 in exchange for your 4.5 million shares.

You make sure to do this within the first 30 days to avoid tax penalties down the road.

This means the value of each share is tiny.

But that’s ok.

You know you can make it worth more by solving the problem.

A few months have passed.

So much is different already.

You were right about the sleepless nights.

Everything takes longer than you think.

Even when you plan for it to take longer than you think.

And turns out you and your co-founder don’t always agree on everything.

But you’re in this together.

Those people with the problem you spoke to are now using a simple version of your solution.

So are others you reached out to.

You’re even making a little money.

But you heard about someone else trying to solve the same problem.

You keep an eye on them, but don’t obsess.

You obsess over your users.

Either way, it’s time to move faster.

You ask your users for testimonials and put them on your website.

You start talking about how things are going on X and LinkedIn.

More users sign up.

But the money you’re making won’t cut it.

Your account says $423.

The credit card is over $5 grand.

Rent’s due in 2 weeks.

You need more.

A lot more.

And fast.

You need investors.

Time for a pitch deck.

Where do you start?

How do you tell the story?

What will attract investments?

You find the Sequoia Capital pitch deck template.

You add every detail.

No no no.

You keep it light.

No wall of text.

You’re telling a story.

The deck is a sales document.

You’ll go deeper on investor calls.

But how can you get those?

You find the Founding Journey investor database.

Info on thousands of investors.

You DM and cold email a ton of them with the deck.

You eagerly await their replies.

Surely they’d be interested — you’re changing the world!

And your deck is optimized!

…

Crickets.

You ask another founder who recently announced their own fundraise.

“How’d you get investors?”

They got an intro from another founder that investor had previously funded.

You ask if they’d do you the same favor.

You tell them the story and share the deck.

They say no, sorry.

Oof.

But now you know.

You go on Crunchbase.

There’s a list of all the startups each investor has funded.

You find the founders on X and LinkedIn.

You have mutual connections with a couple.

DM time.

Eventually someone says yes.

They saw your posts about your startup before.

They think it sounds cool.

They intro you to a few investors.

You share the deck and your Calendly.

The investors book calls — they trust your new founder friend.

It’s go time.

On the first call you run through the deck for 30 minutes.

The investor looks bored almost right away.

Are they even paying attention?

They email you after — they’re not interested.

Weird.

Wait.

The investor had seen the deck before the call.

Did they really need to see a presentation?

Maybe they wanted to ask some questions.

Next call.

You intro yourself and ask the investor what questions they had from the deck.

They ask about the business, but they seem more interested in you and your co-founder.

They want to know if you’re capable of greatness.

If you’re dedicated.

How fast you’re learning from your users.

How big the business can possibly be.

How fast the market is growing.

The investor seems engaged.

After the call you feel good.

Repeat this with the others.

A week later a couple have said they’re in.

You send them SAFEs.

Simple agreements for future equity.

It’s a promise.

When your startup raises money at a valuation above a threshold (or, cap) in the future, their investment will become equity at that cap.

Maybe the lead investor, writing the biggest check, says what valuation cap they’re comfortable with.

Maybe you’re able to influence it.

You set a target cap based on how much money you’re raising in total, and knowing you only want to sell 20% of the company.

Either way, a SAFE is great for you.

You avoid big legal costs for now.

You tell the other investors the round is filling up.

Momentum builds.

In the end you’re oversubscribed.

You have more money on the table than you planned to raise.

Negotiation time.

There are two types of valuations.

Pre-money valuation is how much your company is worth before the investment.

Post-money valuation is the pre-money valuation plus the investment amount.

Investors want a lower post-money valuation to maximize their returns.

You want higher valuation to retain more equity.

In the end you’re able to bump the valuation cap up an extra million.

But you’re still only selling 20% of the company.

Once the deal is done, you and your co-founder will be diluted.

You’ll issue 2.5 million new shares to the investors.

12.5 million shares now exist in total.

And you own 4.5 million.

You now own 36% of the company instead of 45%.

But since each share is now more valuable, you’re happy.

You choose the investors who understand your vision and have the most industry connections.

Congratulations, you just closed your pre-seed round.

But you want to get back to building the business.

Two years have passed.

Everything is different.

You’re doing your best to keep up.

You’ve hired a team.

You’ve raised more money on a SAFE with a higher cap.

Your Seed round.

More new users are signing up every day.

You answer support tickets in your dreams.

It’s hard to consistently find time for anything but work.

Investors are DMing you on social media now.

They want in.

You’re burning money every month to help accelerate growth.

You’ve got about 12 months of cash in the bank.

It’s time for your Series A.

This round is different.

You’ll need to formalize your valuation.

Those past investors who bet on you early with a SAFE will have their investments become real equity too.

But also.

If you pull it off, your startup is on track to become a unicorn and reach an exit.

You need to show you have a repeatable and scalable way to acquire new users.

And that they’ll stick around.

And that there are enough of them.

And that you’re making enough from each of them for the business to be sustainable.

You meet with some of the most well-known VCs.

And one of them agrees to lead your round.

Smaller investors fall in line and the round comes together.

You announce it and things feel different.

Users, partner companies, potential employees, and the press all take you very seriously now.

You actually are changing the world.

You go on to raise a Series B, C, and D in the next few years.

Each time you’re diluted further.

But the company is worth more in total.

It’s over a billion now.

And your 4.5 million shares are a big part of that still.

Even if they only make up a small percentage of the total shares.

Actually, you’ve sold some shares in each round.

It’s called a secondary.

The investors buying into the company buy a few of your own shares.

And you pocket the cash.

More importantly, your users love the product.

You’re doing over $100 million in revenue per year.

Everyone in your sector has heard of you.

But you keep growing in new ways.

Your investors keep mentioning it’s time for an exit.

The value of everyone’s shares is way up.

They want a return for the risk they took investing in you.

They want to invest in other, smaller startups again now.

Since you’ve been diluted you can’t just shut them down.

It’s a collaborative decision.

There are two main options: acquisition or IPO.

If a big company acquires you, you might need to work there for a while.

Maybe they pay you some cash, or maybe they convert your shares in your company into shares in their company.

This just sounds like less exciting work.

You’re growing fast enough where the public might be excited in buying shares of your company.

You decide to do an initial public offering.

On IPO day your company issues new shares that the public can buy and sell freely.

It’s the first time the public has been able to own part of your startup.

The investors mostly cash out immediately.

But you and your team can’t.

Your shares are locked for 6 months.

This is so the public doesn’t lose faith in the stock.

Either way, your personal net worth is now hundreds of millions.

Maybe even billions.

After 6 months, you sell a little bit but you don’t want to cash out too much.

You’re comfortable from your secondaries along the way.

More importantly, you know the company can still grow more.

The investors called it an exit but, for you, it’s still just the beginning.

How We Can Help

Advertise in my newsletter to get in front of 75,000+ founders.