How does this funding actually work? From what little I know (the stock market) you'd sell an equity stake in your company for a certain amount and you have money in your personal bank account.
But it sounds to me like all these funds somehow go back into the company?? how?? what am I missing?
However, the way funding events work in real life is that new shares are created by the company and then sold to the investors.
As a very math-simple example, I have 1m shares in my company, and I own 100% of them. Some VCs want to take a ~33% share of the company for $5m. My "board" (me) creates 500k new shares, and sells/gives them to the investors for $5m. Now there are a total of 1.5m shares, of which I own 1m, and the VCs own 500k.
EDIT: sometimes, though, a founder will sell part of their shares to the VCs during a funding event. That's usually to help give the founder a little liquidity and cash.
However, I just wanted to keep the example simple, I thought it was easier to talk about creating shares than deal with the "who owns the unissued shares" notion.
But yeah, that's a good clarification.
I had never thought of the company itself creating more shares, this is what I was missing in my thought process.
VCs everywhere will always prefer to work with their lawyers to make sure this goes in their favor. it pays to use your own lawyer so that all of this stuff happens on your own terms.
lawyers are responsible to the party who pay their fees, so watch out if anyone seems overly generous with helping you out with legal bills.
If Evan Spiegel and Bobby Murphy weren't taking $10 million+ off the table during funding rounds they'd probably be far less likely to turn down a $3 billion offer. It is fairly common for founders to trade personal stock for cash during a funding round.
Perhaps you mean during initial funding? It is absolutely possible - and common - for founders to take money of the table during secondary funding rounds.
If you want to know more, read Venture Deals[1]. It's very thorough and well written.
[1] http://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitalis...