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Comment by cperciva | Hacker News Reader

What sort of program offers $100k to that many groups and doesn't follow through?

Not to be facetious, but: A program which doesn't have as much money as they're offering people.

The founders of Bootup Labs put some of their own money in, but they're raising money (or trying, at least) from VCs for the rest. They're paying themselves [EDIT: or not -- see reply from dannyrobinson below] from the $50k/startup management fee, not just from expected future profits.

Are there any other startup accelerators which do things this way? I'm not aware of any.

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> $50k/startup management fee

What?!

Bootup Labs is structured as an investment plus a services contract. They give you $50k in exchange for 5% equity, then you immediately pay the $50k back to them in exchange for the office space, accounting services, legal services, mentoring, et cetera. Then they give you a $100k line of credit which converts (at their option) at 1% equity per $10k.

It's a very effective way of protecting themselves from downside risk -- if all the startups bomb, the startup founder have nothing and the investors have nothing, but Bootup Labs still has their $50k/startup -- which might be part of the reason why they've had trouble convincing VCs to invest. I think many VCs would be skeptical of a startup CEO who said "we have no revenue and a completely untested business model, but we're going to pay ourselves $100k salaries with your money".

Incubators that ask you for money _and_ equity make me a little bit sick.

Either sell me a service or give me cash for equity. Don't do both.

the ____ giveth and the ____ taketh away!

It's pretty common for VCs to have the company being invested in pay for legal/research/etc. expenses out of the investment amount -- so you raise $500k and immediately pay $50k back to the VC for their costs.

It's weirder here due to the small scale of investment relative to the costs, and the non-cash services, but not totally implausible.

It also might be part of the reason why they're desperate to get funds from VCs in the first place. The whole "pay us out of the money we just gave you" model doesn't make sense unless the funding is coming from an external source.

My impression from reading all of this is that Bootup Labs is a scam. At best, they have a significant conflict of interest at the heart of their business model.

So would that imply that the founders could try to collect part of the $50k from Bootup Labs? It sounded like when they got kicked out of the program, Bootup Labs only covered the previous months rent, when Statusly should have already paid for rent and services for the entire length of the program.

Now if Statusly was only in the program for 2 out of the 8 months, then it seems like the founders could be owed around $35k (50k2/8.95) for the money that they paid to be in the program for the rest of the 6 months.

I would assume that Statusly never paid Bootup Labs the $50k, due to Bootup Labs never giving them the $50k to give back.

You guys are getting confused with the "rent" word. We paid Statuslys out of pocket expenses (i.e. their apartment and food) because they had no money.

As I understand it, they had no money in part because you didn't keep your side of the agreement.

True VC firms would never invest in this structure for many reasons. Naive angels or silver-spooners, maybe.

I could see someone smart investing a small amount purely for bizdev/dealflow.

As a manager of Bootup, I can assure you that we haven't been personally paid anything. The $50k is funnelled through the company to maximize canadian tax credits, which can amount to a meaningful amount of money. And it's used to pay for rent, legal, accounting, and other services that are for the benefit of the startup.

Doesn't your legal counsel suggest you , you know, don't engage in arguments in public internet forums that could lead to actionable court cases?

Should this turn out to not be the truth, even the slightest unintentional misappropriation of funds for a pizza could end up costing your company a great deal.

It won't, because the Canadian justice system is much saner than the US justice system.

It is much saner, and more importantly we're far less litigious as a society - but it still seems like it could bite you in the butt later.

Maybe I've been around the gringos too long.....

Lucky.

As a manager of Bootup, I can assure you that we haven't been personally paid anything.

My apologies. I had understood that you were drawing a salary from Bootup Labs based on a conversation I had with Boris a few months ago, but I can't remember exactly what he said, and it's quite possible that I misinterpreted him.

Even if you're not personally getting paid anything, I think $50k is a rather generous fee given that other startup accelerators don't seem to need any such fee at all.

Other accelerators get the same fee as well. There are expenses to operate the accelerator plus an investment in the startup, which is exchanged for % in the startup. Often 5%-6%. If you add this up, effectively, the companies are getting $60k of real money spent on them for 6% of the company. That's a $1M post money value. (note: YC is probably an exception to this math since it has no physical space) But, that's how it works for most accelerators. In Bootup's case, we simply funnel the operating costs through the company in order to maximize canadian R&D credits which can amount to 50%+ of development costs. It's just a smart way to leverage more money into the startup, but in the end, the math works out to be the same and those fees are paid to operate the accelerator.

So essentially what you are doing then is taking money from investors who give you money to put into startups, giving two thirds to the startup and taking one third for yourself.

At this rate, what do you care if the startup succeeds or fails? You get $50k no matter what.

I can't fathom how you think this is a good deal for anyone but you. This kind of behavior is why vancouver will be better without you.

R&D? at the pub?

Yeah, usually the Irish Heather (http://irishheather.com/).

I want you to know that this is completely shameful. I'm kind of astonished that you have the balls to show up here after this. You really owe it to Jamie and Steven to make some kind of recompense.

Tax credits are one of the reasons I didn't start my business in Canada. (I'm Canadian and I know the workings of some Canadian tech companies, but my current projects are all in Silicon Valley.)

The way it works is that you get 50% of your R&D expenses back from the gov't, in cash, several months later. To claim it, you have to write reports explaining the R&D value of each project. Besides the obvious bureaucratic overhead, it ends up affecting the organizational structure of the company. It distorts the way the business is run, maybe by only 20%, but that's enough to make you lose in the market in the long run.

What constitutes R&D expenses if I may ask?

I used to work at a startup that makes no money at all. They asked me to sign some sort of "fake" stock options as part of the SR&ED requirements. Of course the numbers were meaningless (pennies or whatnot). So I'm very interested on how this works.

I think this includes your salary/compensation. That's probably why they asked you to sign those stock options, so they could say "Hey look, we paid this guy $X for R&D. That's a tax credit of $Y."

I'm speechless, that's pretty darn good.

What if the startup is a one-man show, making money and start to pay himself? Sort of like owner-but-paid-annually? (Or maybe a one-man consultant).

So let me get this straight, let's say a startup has 4 employees and each employee got paid $50k annually. When the SR&ED is done correctly, the owner can get at least 50% back from the salary alone?

For my company it's pretty much any expense related to an engineer. Salary, rent, power, computer, etc.

So to clarify: almost all expenses (hardware purchases included) will be reimbursed 50% by the BC?

Can rent be substituted as mortgage (say working on your own garage)?

Basically, no. It is 50% of the loaded labor rate of all employees doing R&D activities on projects that your liaison agrees qualify as R&D. When you work out of your home, rent/mortgage on your home are specifically excluded as business expenses (by CRA), so they can't be included. Working out of an office, you get about 65% of salary back; out of a basement (my situation), it is basically 50% of salary.

Oh -- hardware purchases and the like don't count, and you have to be able to prove the salary was paid, so as far as I know there is no game to be played with stock options.

> hardware purchases and the like don't count

Odd, we got to put the entire amount of the Tesla grid that we put together towards the SRED credits. Having said that I just filled out the paper work and handed it to the lawyers and accountants, perhaps they took it off afterwords?

You shouldn't have accepted companies that you couldn't afford to pay. You shouldn't have asked them to move to a different country. Very reckless and irresponsible and to then attack the poster as "twisting the truth" about tiny details seems even worse to me. You should be sorry. You should show some humility.

I agree completely with apphacker. Being evil or unfair on the Internet is anathema to a (web) startup-related enterprise. 3 out of 7 startups funded is ridiculous. With this hitting the HN community, your best hope is that all three of those startups make it big, or you've just lost whatever credibility you have (with startups that count).

Good luck.

Perhaps in the interests of total transparency on this, Bootup should come clean and reveal precisely how the so-called "Management Fee" is disbursed going forward?

$50K for 8 months is a lot of rent and accounting services.

If the Management Fee pays for the managers' salaries, like Danny and Boris Wertz, then they are not necessarily incentivized to have quality startups in each cohort... more important to Bootup in that circumstance is having enough startups to cover their overhead in each 8 month cycle.

Boris Wertz is a Vancouver VC who now invests in Bootup, Boris Mann is a founder of Bootup Labs. Just wanted to clear that up.

As someone who made the same decisions that Jamie did as a cohort member at Bootup, in reference to your comment I don't think this is accurate. We knew the deal, which was contingent, and I moved from Chicago with that knowledge.

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