However, only a fraction of these entrepreneurial pursuits will eventually operate on a grand scale. With many of these companies propelled by venture capital funding, how do investors provide the cash—and get a piece of the startup pie?
Pie in the Sky
Today’s creative infographic from Fundera uses pie to visualize each stage of startup funding, from pre-seed funding to initial public offering. It’s worth noting that numbers presented here are hypothetical in nature, and that startups can have all kinds of paths to success (or failure).
Pre-Seed Funding
In the pre-seed funding round, the founder(s) pitch their business idea to potential investors. These are typically friends, family, angel investors, or pre-seed venture capital firms. Since there is likely no performance data or positive financials to show yet, potential investors must focus on two primary features: the strength of the idea and the team. –First Round Capital At this stage, both the level of risk and potential payoff are at their highest.
Seed Funding
After the initial stages, seed funding—the first official funding round for many companies—takes place. Entrepreneurs use the funds for market testing, product development, and bringing operations up to speed. By this point, investors are generally looking for the company’s ability to solve a need for customers in a way that will achieve product-market fit. At this stage, ideally there is also some level of traction or consumer adoption, such as user or revenue growth. The level of risk is still quite high here, so investors tend to be angel investors or venture capitalists.
Series Funding
In each series funding, the startup generally raises more money and increases their valuation. Here’s what investors tend to expect in each round:
Series A: Companies that not only have a great idea, but a strategy for creating long-term profit. Series B: Companies generating consistent revenue that must scale to meet growing demand. Series C (and beyond): Companies with strong financial performance that are looking to expand to new markets, develop new products, buy out businesses, or prepare for an Initial Public Offering (IPO).
Private equity firms and investment bankers are attracted to series C funding as it tends to be much less risky. In recent years, startups have been staying private longer. For example, Uber obtained Series G funding and debt financing before going public.
Initial Public Offering
Once a company is large and stable enough, it may choose to go public. An investment bank will commit to selling a certain amount of shares for a certain amount of money. If the IPO goes well, investors will profit and the company’s reputation gets a boost—but if it doesn’t, investors lose money and the company’s reputation takes a hit. Here’s how the example investment amounts break down at each stage: An investor’s equity is diluted as other investors come on board, but their “piece of the pie” usually becomes more valuable.
The Venture Capital Funnel
How likely is it that a startup makes its way through the entire process? In a study of over 1,110 U.S. seed tech companies, only 30% exited through an IPO, merger, or acquisition (M&A). Companies that reach a private valuation of $1B or more, known as unicorns, are even more rare at just 1%. At each stage, natural selection takes hold with fewer companies advancing. Here’s a look at the entire funnel, with the “second round” generally corresponding to a series A stage, a “third round” generally corresponding to a series B stage, and so on.
Source: CB Insights Notably, 67% of the companies stalled out at some point in the funding process, becoming either dead or self-sustaining. While startups carry a high degree of risk, they also present opportunities for substantial rewards. on A lagging stock market dented these fortunes against high interest rates, energy shocks, and economic uncertainty. But some of the world’s billionaires have flourished in this environment, posting sky-high revenues in spite of inflationary pressures. With data from Forbes Real-Time Billionaires List, we feature a snapshot of the richest people in the world in 2023.
Luxury Mogul Takes Top Spot
The world’s richest person is France’s Bernard Arnault, the chief executive of LVMH.
With 75 brands, the luxury conglomerate owns Louis Vuitton, Christian Dior, and Tiffany. LVMH traces back to 1985, when Arnault cut his first major deal with the company by acquiring Christian Dior, a firm that was struggling with bankruptcy.
Fast-forward to today, and the company is seeing record profits despite challenging market conditions. Louis Vuitton, for instance, has doubled its sales in four years.
In the table below, we show the world’s 10 richest people with data as of February 27, 2023:
Elon Musk, the second-wealthiest person in the world has a net worth of $191 billion. In October, Musk took over Twitter in a $44 billion dollar deal, which has drawn criticism from investors. Many say it’s a distraction from Musk’s work with Tesla.
While Tesla shares have rebounded—after falling roughly 70% in 2022—Musk’s wealth still sits about 13% lower than in March of last year.
Third on the list is Jeff Bezos, followed by Larry Ellison. The latter of the two, who founded Oracle, owns 98% of the Hawaiian island of Lanai which he bought in 2012 for $300 million.
Fifth on the list is Warren Buffett. In his annual letter to shareholders, he discussed how Berkshire Hathaway reported record operating profits despite economic headwinds. The company outperformed the S&P 500 Index by about 22% in 2022.
How Fortunes Have Changed
Given multiple economic crosscurrents, billionaire wealth has diverged over the last year. Since March 2022, just four of the top 10 richest in the world have seen their wealth increase. Two of these are European magnates, while Carlos Slim Helu runs the largest telecom firm in Latin America. In fact, a decade ago Slim was the richest person on the planet. Overall, as the tech sector saw dismal returns over the year, the top 10 tech billionaires lost almost $500 billion in combined wealth.
Recent Shakeups in Asia
Perhaps the most striking news for the world’s richest centers around Gautam Adani, formerly the richest person in Asia. In January, Hindenburg Research, a short-selling firm, released a report claiming that the Adani Group engaged in stock manipulation and fraud. Specifically, the alleged the firm used offshore accounts to launder money, artificially boost share prices, and hide losses. The Adani Group, which owns India’s largest ports—along with ports in Australia, Sri Lanka, and Israel—lost $100 billion in value in the span of a few weeks. Interestingly, very few Indian mutual funds hold significant shares in Adani Group, signaling a lack of confidence across India’s market, which was also cited in Hindenburg’s report. As a result, Mukesh Ambani has climbed to Asia’s top spot, controlling a $84 billion empire that spans from oil and gas and renewable energy to telecom. His conglomerate, Reliance Industries is the largest company by market cap in India.
