What goes when a new business starts? And also how it is funded? These are important things to know as an investor because if the company ever plans to issue an IPO you know whether you should or should not invest in the company.
Someone comes up with a great idea and is very confident that he will be successful if he launches the business idea. But the entrepreneur wants money to fund the idea. If the entrepreneur does not come from a background of business then he may face a big trouble to get any serious investor. The option that he is left with is to ask his family or to take a loan from the bank.
If he asks his friends and family for money, then they would be termed as an angel investor. The money that his friend and family lend to him is not a loan but they have actually invested in the business.
The initial money, this trading software, is known as the seed fund and the money will be-be in the bank account of the company. This is also the initial share capital of the new company. In return for the money invested by the angel investor, they will be getting share certificates of the company which will give them an ownership of the company. This is proportional to the amount of money that they have invested in the company.
The asset of the company is the amount of money that is there is the company’s fund. This is the company valuation as of date.
The company will also issue shares and the number of shares is calculated by the total capital of the company divided by the face value of each share. The total number of shares is the authorized share of the company. The authorized shares will be allotted to the promoter of the company and to the angel investors. Some of the shares will also be retained by the company which it will issue in the future.
The issued share is the total of what the promoter and the angel investors get. This is basically the total shares minus the shares that are retained by the company.
The promoter can then start the business with a healthy seed fund and now has to take every step cautiously. He makes sure that he opens just one store and starts a single unit to prove his business.