The Building of a Funding Base

Born in 1986, David Karp grew up in New York City.  At the age of 11, he taught himself HTML and started designing websites for businesses.  He never finished high school.

At the age of 14, Karp started working with a number of entrepreneurs designing software.  He had equity in some of these businesses as a part of his employment agreement.  Eventually, he started his own business and built an additional capital reserve.

Using his capital reserves, he created Tumblr.  He was able to find investors for 25% of the business.  Six years after its creation, Karp sold Tumblr to Yahoo for $1.1 billion.  Karp has since invested in other start-ups.

While David Karp’s success is extraordinary, his pattern for financing an entrepreneurial business is one that many business entrepreneurs use:  Use one business to create financial reserves for starting the next business.

The key to entrepreneurial financing is to hold onto as much of the business as long as you can.  Early on, you need to provide a greater share of the business for a modest investment.  If you establish the business as a success, you can raise much more money for and give away less of the business.  If Karp initially sold off 50% of Tumbler rather than 25%, the impact would have been a reduction of $275 million in what he would have received in the Yahoo sale.

Financing an entrepreneurial start-up is something that aspiring entrepreneurs think of at an early stage of their career.  This requires real dedication and is a test of whether an entrepreneurial career is for you.  In effect, entrepreneurial financing is an investment in the future you want.

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            “You must always overcome your comfort zone.” – Sunday Adelaja (Author)

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