TechStars Raises Fresh $24 M, Offers New Startups $100K Each | Hacker News Reader

TechStars Raises Fresh $24 M, Offers New Startups $100K Each

betabeat.com

141 pointscienrak36 comments

The reason the Start Fund works is that the terms are so good--uncapped and no discount--that if you're planning to raise money at all, you should take it, and so the investors get a real index, including the potential home runs.

These terms are significantly below the mean for the last YC batch, and I'd bet that some of the best startups don't take the deal. It's a decidedly less clear strategy to invest in only the not-so-good startups in a batch.

"Y Combinator started the year before us, and it’s the same genre, but under the microscope, we could not be more different," said Mr. Cohen. "The fundamental difference between us and the other accelerator programs is they have a black box, while we have open sourced our model."

TechStars and YC are certainly different but having read:

What Happens At Y Combinator: http://ycombinator.com/atyc.html

and the TechStars equivalent:

Do More Faster: http://www.domorefasterbook.com/

YC doesn't seem like any more of a black box than they are.

Cohen is referring to the fact that TechStars is essentially a franchise and YC is not.

And that the first month of TechStars is a lot of back-and-forth, matching startups with mentors and mentors with startups. Where all three months of YC is build, build, build. (And getting ready to demo.) To stretch an academic metaphor, TechStars reminds me of a residential college (where you do everything with your cohort) and YC reminds me of the traditional Oxbridge model (some lectures, lots of independent study and regular one-on-one sessions).

Neither is particularly "right" or "wrong", they're just different models.

This is excellent news, and a good alternative to YC.

Because of the Yuri/Conway offer, YC had been a substantially more financially viable program for a lot of startups that need capital to get moving- This helps level the playing field.

While I love YC, competition in this space is good for everyone.

It feels like the amount given to incubated startups is creeping up, both in YC and now in TechStars, as the programs have gotten more popular.

Do people no longer feel that "the amount a graduate student makes for three months" is enough to actually start a company? Or is this more reflective of the market value rising for the amount of equity typically taken by a top incubator? If it's the latter, wouldn't there be a new opportunity for an incubator to give grad student wages to willing companies for a much smaller equity stake?

The StartFund style money is entirely in play so investors can get in on "the next big thing". There's a pretty common belief that the next Google will go through a really good incubator on their way to world domination.

One of the stated potential uses for the $100k is "help a team make a critical hire". I think this may be a result in part of rising market rates for quality developers.. It used to be a lot easier to get someone to come work on your startup for 1% equity + $30k salary than it is now.

So you know how startups are a star search with returns dominated by whether you invest in Google/FB/etc? This is apparently pretty true for YC as well: the AirbnBoxen/Dropboxes will swamp most everything. Given that everyone is trying to invest in that one best startup this year, the prior valuations of "we guess the best starup will be in this pool" are pulling away from the generic "two guys with a gleam in their eye" ones, as a consequence of market participants reacting to YC et al being ridiculously better at picking winners than previous screening mechanisms.

Yay capitalism, by the way.

Someone should do a side-by-side comparison of the batting averages of all these incubator programs and their respective terms.

Here is the TechStars data. Anyone know if YC has published their results anywhere?

http://www.techstars.com/companies/results/

this is about as close as i've found. unofficial, and a little stale, though.

http://yclist.com/

I'm intrigued by the fact that the piece highlighted by techstars is simply the number of companies acquired (along with founded, active, and failed). That shouldn't be the metric of success for a company.

I founded a startup to build a big scaleable business. If I end up selling, then it will only be a success if the acquiring team, the impact to our vision, and the economics are all excellent.

If I wanted to compare the incubators, I'd want to see relative user bases, revenue generated, valuations, etc. The proof is in the pudding, and that's the pudding.

I believe their results page is largely automated based off of Crunchbase data. From what I understand it's not necessarily their metrics, but just the ones that people ask about and are fairly easy to access. (Particularly since what you're asking for is sensitive/confidential info!)

Yup, you're right: the data is automated by CrunchBase. It should also be noted that fundings, exits, etc are under-reported, as CrunchBase is generally a little bit behind for two reasons: 1) Not everyone keeps their companies up to date 2) Some people don't want to make much noise with their financial events

Most valuations / acquisition amounts are confidential. I agree, that would be better data to show, but it's just unrealistic to think you can get that.

http://ycombinator.com/nums.html

thanks pg!

Techstars should include the actual valuations or acquisition values. Just citing number of "acquisitions" is meaningless these days. I know for at least one company listed as an "acquisition" was basically a failure with a few members of the team being hired together by the "acquirer".

The most striking thing to me when I compare TechStars results to YC results, is that I haven't heard of or used any TechStars companies, but I have used many YC products. Maybe just proximity to the valley though.

The names on the funding aren't quite in the Ron Conway, Yuri Milner realm - access to that network is one of the most important pieces of Startfund for follow-on, BD, etc.

That said, it's still awesome to see expansion in funds available for early-stage companies.

It's great to see a lot of incubators really coming to life recently. What's even better is that entrepreneurs have options. If you agree with one ethos, you can apply there and if not, look for someone else. My only hope, though, is that this becomes a staple in business and not just a fad. I also hope that the quality of these incubators remains extremely high and that they continue to select companies with a fine tooth comb. Congrats to TechStars for moving forward.

Its great for startup companies, now they just have to worry about executing in the first year. I do think they will miss a lot of the struggle and hardwork in fundraising, but as pg says thats just a time sink. One jab: Whats better than 100K...150K

Great news for more quality startups to be founded.

How are these terms different than what goes on with YC and StartFund? Better or worse?

At this point what does a another 5% do to harm you? 10% of nothing is still nothing, but 10% of something worth while is well... you get the idea.

With YC/StartFund there's no cap, no discount. The terms won't be better than that, but there's nothing in the article about cap or discount, so we'll have to wait for more info to know whether the terms are the same or worse.

Actually, that isn't quite true anymore. I'm not sure I'm allowed to disclose those terms, since they aren't mine to disclose, but those have since changed.

I'm going to guess that they'd be crowing about it if they tried to match the no-cap/no-discount awesomeness of the StartFund. Still, huge move for them... It's a nice time to be early-stage!

The $100k is a $3m cap with a 20% discount [0]

Assuming the companies seed round prices above $3m, it's an additional 4% dilution to the company (bringing total initial dilution to about 9%)

[0] http://www.readwriteweb.com/archives/techstars_nearly_matche...

Seems to introduce some signaling issues...

The stronger the company, the less likely they are to accept the note at a 3mm cap.

Agreed - seems like the terms could potentially defer the top-quality companies (although most would be happy to have the $ in their pockets), while the start-fund structure makes it attractive to any stage.

I'd hope the money is elective though, as that would certainly solve the problem.

Wow. $3mm cap with 20% discount is horrible; I don't know of anyone currently raising money on those terms. There has to be some mistake somewhere.

It's an "or," not an "and," I think. 3mm cap OR 20% discount, whichever is lower, but not both.

These are average standard terms for a first raise, pre-seed. This just allows companies to focus more on building instead of raising.

Regarding transparency: TechStars New York is currently on Bloomberg as a series, albeit quite some time after the fact (e.g., Toviefor folded just weeks after TechStars ended & is one of the featured startups).

HN link (submitted by me): http://news.ycombinator.com/item?id=3021939 video: http://www.bloomberg.com/tv/shows/techstars/

The discovery of these incubator models is one of the most interesting things happening in the startup community - in addition to giving aspiring entrepreneurs an opportunity to build great things, they are creating an even more tightly knit startup community. They are making it easier for new people to get involved in this network/community, who in turn give back because they have such a great experience.

Reply on news.ycombinator.com