Angel Investing is all about getting in early.

Startup funding isn’t a linear process; it’s milestone-based. That means a company can jump in value, or fall behind, seemingly overnight.

The key to getting the maximum payout on our investments is to get in on deals before they’ve gained too much traction. A crowded playing field is a profit-killer.

There are multiple funding stages at which we can invest… but a good rule of thumb is, “the earlier, the better.”

Since each round – or “raise” – is larger than the last, your $1,000 investment will buy more equity in the first round than it will in the third.

In the very beginning, a startup is worth much less than an established company.

Consider this example: you find a startup with a great idea and a winning team.

You decide to get in really early – before the company has any revenue. That company is worth fifty thousand dollars; it has assets and potential, but not much of a track record.

Your thousand bucks equates to a two percent stake in that company. That number may get diluted a bit in later rounds, but that’s okay. Maybe you come out at the end around one percent.

But if you waited and got in on a later round – say, when the company was worth $5 million… your thousand dollars would be worth much, much less – 0.0002 percent, before dilution.

Same investment amount… 5,000 times less equity.

Suffice it to say that timing is key here.

That’s why you’ll want to familiarize yourself with the different stages of startup funding.

Here’s an example of a typical timeline, from “founded” to “funded.”

Let’s dig a little deeper into what happens during each funding round.

1. Idea Stage

    When a startup is first founded, it’s really just an idea. There is no product yet; nor are there customers or investors. Founders spend their own money or open lines of personal credit in order to build a prototype, do market research, and bring on any help they might need. Typically, founders put in around $50,000 at this stage.

2. Friends and Family Round

    It’s exactly what it sounds like. Friends, family, and other personal contacts contribute anywhere from a few thousand dollars to $100,000 to develop a minimum viable product (MVP). At this stage, it’s unwise for founders to give up equity; so, most of the time, these contributions are simple loans with interest.

3. Seed Round

    Also known as the angel round, this stage marks the first (and biggest) opportunity for investors to buy a stake in the company. Startups usually have some revenue by this point. Investment amounts vary wildly, but a typical seed round falls near the $150,000 mark.

4. Series A

    Startups that make it to Series A have already achieved product/market fit. That means they have an established customer base, well-documented growth, a few years of good financial statements, and a valuation around $10 million. Angel investors, angel groups, and venture capital firms step in at this stage to raise around $2 million to grow the company.

5. Series B, C, D, etc.

    A very small percentage of businesses make it to these rounds of funding. Valuation is north of $50 million, and rapid growth is the goal. This is when companies go global, expand offerings, and make huge profits. Series B and beyond are funded by venture capital funds. This is around the time most acquisitions take place, too.

6. Initial Public Offering (IPO)

    By this time, valuation is a billion dollars or more. Businesses that end up on the stock exchange are well-established industry leaders. Equity holders can sell their shares after any applicable lock-up periods (usually one year). Stock is now available to the public for purchase.

On average, it takes about 10 years for a company to make it to the final stage – but fewer than 1 percent of startups ever get that far. Acquisitions, mergers, and failures can happen at any time.

Some investments take much longer than ten years to pan out. American Express was in business for 127 years before it went public!

At the other extreme is Netscape, which had its multibillion-dollar IPO in 1995, just 16 months after its conception.

Pretty much any scenario is possible, but the average time to exit is three and a half years.

The earlier you invest, the higher your returns are likely to be.

The vast majority of your investments will take place during the seed round, but some startups do seek angel investments in other phases.

Any time you consider making a deal, take note of where your money will fall on the timeline.

It could mean the difference between a decent return… and an eye-popping, life-changing, epic win.

Until next time,

Neil Patel

P.S. My team put together this top-level table for you – print it out, hang it on your monitor, whatever you need to do. But keep it handy!


Comments

45 responses to “Where Your Money Falls on the Startup Timeline”

  1. I WOULD LIKE TO INVEST IN THE STOCK! LEARN MORE ABOUT IT!SO GROWS BUT ONLY PROBLEM IS!HAVING PROBLEMS HOW YOU COMPLETE IT.IM TERRIBLE WIYH THE PHONE, ITS FIRST TIME. THEIRS ALOT TAKE IN.LOTS OF LEARNING YOU CAMT LEARN THIS OVER NIGHT ,IT TAKES YRS TO REALLY GET THIS TO UNDERSTAND IT!

    • I signed up for this program in early August, because of a motorcycle accident earlier this summer, I haven’t had much free
      Time to devote to this, I’m getting all these emails and feel like I’m already getting behind and it feels impossible to catch up, plus I seen an email about signing up for the elite program, what advise can someone give me..

      • Hey Greg!

        I totally understand, I had some urgent family matters from out of town and I’m feeling behind myself..not sure what I can do, I”ve just been going through my emails and trying to rid of the ones I don’t need or can’t join at the this time…it’s a little frustrating when there are emails with a sense of “Urgency”, but, I usually stick by my rule, If its too urgent, and or out of my control, than it’s not or me, It may come back around or there’s another one!

        Best!

        • Many of us are new to the business , as am I , so , I’m going to use Neil’s strategy of small investments ( $100 or $50.if allowed , in at least 5 ) of the one’s he looks over and sends to us as an opportunity . After that I will add another of his suggestions until I reach ten . Then I will follow the investments and his suggestions as to what to do . For instance ,is the company moving forward , is the company attracting more angels . What is the company’s evaluation ,going up lets hope. Is the company moving through the stages in a positive way and time. Or,Is the company stalled and worse , losing support . Finally , Neil will let us know if we should right off a business and how to do that where taxes are concerned. ( Neil has a video on that subject . Check it out) . Then ,it’s time to add another offer. Good Luck , I think we’re all going to do well if we follow the lead of the two men in charge of this business.

  2. Neil;
    Two or three weeks go I listened to you and the “Shark”
    make a presentation and answer questions about this investment program that you were forming. I liked the idea and agreed to join with an investment commitment, but
    I have not seen anything on line, nor received anything in the mail. What Gives?

  3. I think that I invested with you, but I have heard NOTHING
    since–not even an acknowledgement of the investment.
    Did you even receive my sign-up? I used my wif’s Bank
    Credit Card. my email:ntournillo@gmail.com
    Nicholas Tournillon

  4. Neil, I listened to the pitch you and Robert gave and bought into the idea with the only extra funds I had. Since then I have received several Deal options to invest, but none are in my affordable range. I only have a extra 80.00 a month (what I call my allowance) to do things to better my future with. Retiring with a SSI income only lets me survive not live.

    • Mike,
      Just from the looking around I’ve been doing, the “entry” size, or minimum investments for each business will differ depending upon the platform that company is raising with. I’ve noticed that Seedinvest opportunities will typically be a 1000 min. in round A. If you look at Republic’s platform, they have a lot of companies that have a minimum investment of $100. The only thing is you’ll have to do your own due diligence on each of the companies to decide which you’ll invest in.

      The good thing is , along with the info Neil is putting out, each of the platforms have their own education portals as well to help you out.

      Hope that helps!

  5. Hello Neil,
    This is all very exciting to me. I am so very thankful for you. I thank you for helping us all to learn how to be an Angel Investor.
    I have learned a lot. You have made it very easy for me to learn. The way you have presented the information makes a lot of sense. It is quite easy to use. I have made several Angel Investments. I only signed up with you about less than 30 days ago.

  6. GM Neil,
    Glad you made this video, Nothing happens overnight. So now I feel much comfortable in investing with Angel network. Building a future for my grandchildren’s.

  7. I purchased your program and have received several emails on different topics and investment selections but I am a little overwhelmed with info. I really don’t know how or where to start. I think I need some direction as to how and where to start. can you help me understand better

    • Hi David. In your opinion, has it gotten better or easier to understand? I was going to join as well but wanted to see how others were doing w this program. Thank you!

  8. I feel the same way as several other people here. I signed up after your podcast and have not received anything in the mail. You’ve done well getting us here but where is the follow up ?? I keep up with the videos but would appreciate a little more info. Thanks,

  9. Hi Neil., I appreciate being able to be a part of Angel investing. Being a retired nurse, I am looking forward to these investments providing some income for me in the future. At first it seemed overwhelming but as I continued to read and learn, you provided the steps I needed to make it easy. My question is this, knowing it will take 3-5 years, will you be able to advise us on the next steps, such as in 3+ years, when to know to take money out………? Thanks, Pat

    • Hi Pat. I’m contemplating joining and wanted to see how you were doing with this program and what your honest opinion was. Thanks!

  10. Neil, I have a simple question. Do angel investors have the opportunity to get in on the seed round more often than than later stages (series A, etc.)? Does your information reveal which deals are in the seed round?

  11. Hi Neil, I wish that I would have known that it would take 5 to 10 years to see a return on an investment. I’m a senior citizen and I may not be here in 5 or 10 years. So, if there is any investment out there that is senior citizen friendly, give us old folks a heads up, ok?

  12. Hi Neal, I’m not sure how to tell where on the time-line that the current funding is at for an offering. I don’t see “seed” or other info, am I missing something?
    Thanks, jeff

  13. I was praying for a miracle in my life at the age of 74. Then your video showed up as I was scrolling through Facebook. Now I am praying that I have not made the wrong decision as my income is limited, and I have made the commitment on a larger scale than I had originally signed up for because each time I committed to an amount, another video appeared encouraging the next level. My time on this earth is limited, so I would like to feel that I didn’t do this in vain. I hope you’re not the only one that’s getting richer. I’d like to see improvements in my income too.

  14. I agree with Bob, I am a senior citizen also but I have invested now into ten start ups. My question is if something happens to me God forbid is there anyway these investments can be included in my will or given to my children? Please answer this one question, Thank you

  15. Robert introduced you to me – and I bought in. Your education has helped my ‘investor knowledge base’. But I am 75 and live on a ‘nice’ Trust and SSI, and have small amounts to invest… but at my age, I can’t WAIT TEN YEARS to find out what has worked and what has not. By then, I may be an ‘angel’ myself! I’ll keep up with your info, but will probably not act on any of your recommendations. Thanks for the education.

  16. So how do I as a novice know when to “cash in” on the investment, if it goes public?
    Do we get sent a check automatically or how does that process work?

    Do you have a learning video on this.

  17. Hi Noel this is Gabriel I joined this program a little over a month ago and I was wondering if I can invest in the cyber security company that is supposed to be a big money maker Evan though I am not an elite member?

  18. Hi everyone,
    I am trying to figure out the difference between the angle investing and the stock market with regard to how they would pay off. For example, as an angel investor, I invest $100 in a startup in its seed round time. Hopefully, this startup will be among those %1 successful one!! that goes IPO in 5-10 years with the value of let’s say 1 billion. How much would I make with my $100 on IPO day? Any ideas?

  19. I just heard you say that startups are not for overnight prophets. I understand that, but 5 to 10 years. I wish I had know that before I spent over $500.00 for your site.

    How do I get a refund?

    • Hi Alicia,

      While many investments may take 5-10 years to pay off, the average is 3.5 years. I understand that’s still a bit of a long wait, though. If you would like to cancel or change your membership status, please reach out to our Customer Care Team at 1-866-310-1498.

      Have a great day!
      Neil

  20. Neil, who tracks my investments and how do I access the information. I invested in a few start ups but don’t have a clue how to find out if they are gaining traction. I would think that I can watch my investments all the way.

  21. I’m new at this, but I don’t know how to invest in any of the companies, WHERE DO I START?
    Please help me get started

  22. Hi Neil,
    I joined your program thinking it would be a good way to start learning and invest for my future and my children’s to come. Although I’ve been doing my best to keep up with all the information that you and your team are providing, I am still not sure what to start investing in. I have under a thousand to start, can you point me to the right direction? The start ups, the BDC’s, what start ups are you investing in?

    HELP ME GET STARTED, PLEASE!!!

  23. i entered this program in August and seem to have missed a lot/
    Can someone inform me on how we can invest in companies that were featured but late comers didn’t have a chance. Your information will be highly appreciated.

  24. Hi Neil,
    I have the same questions as these folks but where do
    we get the answers? Can you provide a chat room where
    your angels can get together and discuss things they have
    gotten into or are interested in or concerns they might have
    and get answers?

  25. Hi Neil I was wondering of I invest 100 is it taken out of my acct every month or one time fee? The co I am looking at has almost reached its goal. What happens after that?

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