So, you want to become some sort of Internet tycoon. What will help you get there? Maybe you should consider how your business is financed.

Success can spell the difference in billions.

Andrew Mason, the chief executive and founder of Groupon, is worth $2 billion less than Eric Lefkofsky, the man who financed Groupon’s start.

The multibillion-dollar difference is a result of a startup’s need for capital at the embryonic stage. If an entrepreneur obtains venture capital financing early in the business’s life, it is typically at a huge cost. In exchange for this financing, the startup’s founders will have to sell part of their company. But the business is merely an idea at this stage and usually not a proven success.

The venture capitalist has all the cards and can purchase a substantial portion of the business at a low price. When the time comes for the company’s initial public offering, a large part of the money will go not to the entrepreneur but to the venture capitalist.

Decisions that entrepreneurs make early on in terms of financing can affect how much money they will reap later.

Via The Sydney Morning Herald

Photo by Jason Rogers