Much of what I have posted in this series is about the every day happenings at most small businesses. However for a minority of them, there is a chance for a large exit. This would be an IPO (Initial Public Offering) or the Sale of the Business to a Strategic Buyer. These exits are generally many times the invested value and are a huge source of wealth for those involved. These are generally Product Companies (those that make something) instead of Service Companies (those that have people do something) or Sales Companies (those that sell goods and services of others).
The reason for this is scalability. Service Companies will need people to deliver the service and they scale only when you add more people. Sales Companies scale with space or Sales People. Product Companies scale on Production Volume, which is something that can be bought with cash one time. It is not to say that the other kinds of companies can not grow and become large. It is just that the path to getting there is different. The kind of returns that a Venture Capitalist wants and the time allotted for these returns are normally not met by these companies.
So if a Product Company is in a rapid growth phase, it will often need additional money past the "A Round" (that first round of external VC financing). There are companies that have gone through many Rounds (F, G, etc.). But most go through one or two more before some sort of exit happens. There are funding sources that the VC companies know that specialize in this. They are often different than those that will fund an A Round. The A Round guys have a higher potential outcome. Those that join later have some more certainty but less return potential.
So, how will this work. The company will sell shares to raise that money at a pre-money valuation. Investors will agree (or not) to purchase shares under these terms. Note, that the founders will own less of the company than they did before. If the pre-money valuation is above an earlier round, it is called an "Up Round". Otherwise it is a "Down Round" and generally the existing shareholders will lose a lot percentage of their ownership.
Once the Round is completed, the company will have a new valuation called the post-money valuation. That will come with a change in the ownership structure (called a cap table). The company gets the money it needs to grow and things move on.
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