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Comment by cperciva | Hacker News Reader

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".

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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.

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