Over the past year, the unicorn club—a Silicon Valley moniker for start-ups with a valuation of $1 billion or more—has expanded at an unprecedented rate. The second quarter of 2015 was the sixth-consecutive quarter of more than $10 billion of venture capital invested in a single quarter, according to the MoneyTree report, a collaboration between Thomson Reuters, Pricewaterhousecoopers and the National Venture Capital Association.
But how do entrepreneurs, armed with little more than an idea and a prototype, get their hands on large sums of cash? Through a complex and rapidly growing network of angel investors, venture capitalists and institutional investors.
Here's how it works: Bootstrapped companies—funded out of the founder's pockets—start by seeking out early-stage investments, and move toward late-stage investments over time. As the company grows and evolves, the type of investors, and the metrics that matter to investors, evolve too, said Tyler Willis.
Willis teaches a class in which he mentors aspiring angel investors, who donate small amounts of their own wealth (usually less than $50,000) into very early-stage start-ups. When entrepreneurs pitch Willis with their "deck"—a presentation that pitches their company to potential investors—he's looking to be convinced that a company will get what he calls "traction."