We Got Accepted into Techstars and Turned Them Down
talkroute.com
talkroute.com
The "100+k for 7-11% equity" analysis is particularly damning.
I think they're taking the "Techstars accepts 1% of applications" thing much too seriously. Presumably, only a tiny fraction of the inquiries they get are from serious teams.
Also: I've been to 1871 a couple times, and I got exactly the same vibe these people got. I know some people with solid companies working out of there, but the space is practically the archetype of the "startup playing house" idea Paul Graham likes to write about. It's particularly sad because it's located in Chicago, where it's easy to get an inexpensive office lease.
Later: the equity math is apparently not as damning as it sounds, or, perhaps, not damning at all.
The equity analysis you pointed out as well as the description of the LoI stuff made me reconsider that position, and by the end of the article I was glad I read it. It wasn't quite the muckraking I was expecting, and instead was a decent exploration of when a fit with an accelerator just didn't exit.
Matasano never did the incubator/accelerator thing, right?
The exit analysis is the first thing I think of when I think of Techstars, too. Ostensibly, the reason to sign on with an "incubator" is that the connection you get would enable you to obtain rapid growth. But I can't think of good examples of companies where that's happened.
Also, I think the section regarding TechStars success makes an assumption mistake:
"The national rate of failure for startups is 75-90%. So lets say it was a good year and Techstars Chicago received a 1000 applicants/startups to choose from. You know based on national averages that 750-900 of these companies will fail. That leaves 100-250 that will succeed. Techstars is only taking 1% of applicants, which is 10 startups. Unless Techstars is picking poorly, they are selecting companies that are positioned for success from day one. These startups would most likely succeed with or without Techstars."
The common assumption that 75%-90% of startups fail is usually regarding venture backed startups, not people who fill out the TechStars applications. I would wager that the if you looked at the failure rate of anyone who had an idea they wanted run through an accelerator, the failure rate would be much, much higher. What you should benchmark TechStars against VC performance.
(Disclaimer: I went through TechStars.)
Also important to control for cohort size. These are 10 company classes. A 100 million+ breakout seems to be somewhere between a 1 in 100 and a 1 in 50 occurrence.
They've crowd-funded over 125 million dollars toward medical expenses for people in need.
http://betaboston.com/news/2014/09/16/product-design-startup...
And the real answer to this is that getting large exits takes a long time. Unless I'm mistaken YC, which is older than Techstars and has 50% more portfolio companies, has 3 exits over 100 million, OMGPOP, Heroku and Twitch. Granted the last one was a big one.
(Disclosure: Hackstar in 2009, Founder in 2010)
That said - I think Excellerate Labs (before Techstars bought them) had a serious hand in getting several startups off the ground. The tech scene in Chicago specifically is newer (so companies are younger) which means less exits, but I think if you watch the Chicago scene for a bit - that's going to change very soon.
That said - good analysis here. Good to see a founder not just jumping at the opportunity for funding "just because it could."
TS initially gets 6% (for $18k, but that's irrelevant). The founders also take the $100k convertible notes at $3M cap and 20% discount.
Say the company closes a round of $1M at $3M pre = $4M post, i.e. the investors get 25%.
For me, it's always easier to think about shares. Say the initial pool is 1,000,000 shares, split in 940,000 to the founders, and 60,000 to TS. Pre-money, 1 share costs $3, and the investors get 333,333 shares, that are added to the pool.
TS has 20% discount, that makes the price $2.40. With $100k, TS can buy 41667 shares, that are also added to the pool. Overall, there are now the following shares: 940,000 to the founders, 101,667 to TS, 333,333 to the investors, so they respectively own 68.36%, 7.39%, 24.24%.
(Note: this may be a simplification, meaning that the investors can possibly work on pre-post to have exactly 25%, which means both the founders and TS will have a little bit less.)
Skipping the details, let me add a few more examples.
- Round of $1M at $4M pre = $5M post, i.e. the investors get 20% => founders 73.25%, TS 7.27%, investors 19.48%.
- Round of $500k at $1.5M pre = $2M post, i.e. the investors get 25% => founders 66.35%, TS 10.12%, investors 23.53%.
In conclusion, $100k for 7-11% equity seems pretty reasonable.
Edit: fixed formatting
I completely respect that you are in the bootstrap your business camp, and that 1871 isn't your scene. But this post has confirmation bias written all over it. TS Chicago has been a boon to many of the companies that went through it, and that is the only measure of success anyone should care about.
Frankly: I am skeptical of all but the first tier of startup accelerators, and I am especially skeptical of startup accelerators based in Chicago, a locale not conducive to funding. One argument the post made that I'm confident is correct is that the accelerator model, when it ever makes sense, does so only when the company is on a trajectory towards raising funds.
I also find the idea that Excelerate charges more than YC to be jarring. It shouldn't be controversial to say that YC is the more impactful of the two programs.
Again, if you aren't planning on fundraising, don't go through an accelerator. They are seed stage investment vehicles. Once you take investor money the clock starts ticking on an exit. Perhaps that should be in bold print somewhere, but we all read HN, this should be fundamentally understood by everyone.
I would counter argue that Excelerate/TS isn't expensive, given the stage that they come in they are severely diluted by the time you raise an A, and they have a business to run. I think you could make an argument that YC is by comparison cheap, not a bad thing considering their track record.
This says it all to me.
In fact, if you're not cynical, you may not be ready for the business world.
I can tell you that this letter of intent was one and a half pages long, contained a simple, bulleted list of documents required for due diligence, and explained the structure of the funding and program.
Additionally, there is a very clear line that indicates that they are willing to extend the deadline provided you give a reason.
Finally, this document is not the formal acceptance of anything related to the program.
I would suggest that "demand[ing] it back" using "high pressure sales techniques" is a strong overstatement.
Basically, it sent a message, at least to these guys. I think they read it correctly.
Ours, on the other hand was, "Awesome! Troy called and invited us to the program! We finally get to quit our day jobs and go after this business full time like we have always dreamed about, and TS is facilitating that! Let's go over this LOI, which is simple and straightforward and doesn't legally bind us to do anything other than say we understand we are continuing the process and wont tell anyone publicly about it and gets us one step closer to Chicago and the success of our business!"
Looking through an LOI and getting it back to them was a joy for us, not a burden.
How do you know that until you've had an attorney review it?
Is it possible, that maybe what transpired here, wasn't in fact a calculated tactic, designed to screw the applicant?
In this specific case, I can see it going both ways.
So I guess where we perhaps differ, is that I would prefer to be certain of intent. Ideally, before reaching for the pitchforks to publicly shame someone.
What I think happens is that the people sending this are not completely aware of how their role has shifted. They primary see themselves as "startup helpers" while the legal documents makes them look like an investment fund. I'd say they should pick one and stick with it - I don't mind either, but you can't pretend you're investing, and manage paperwork like a naive non profit...at least that tend to rub some people the wrong way.
I don't know the details of this specific company, so I won't comment on any of those particulars, but I can for sure comment on the structure of our terms.
As I mention in another reply on this thread, the OP appears to have misunderstood the note terms as presented. Currently the 100k note offered is a 3mil-5mil cap note, 20% discount. What causes it to be 5 vs 3 is whether or not the company has had a prior financing event. In other words the cap by default is 3, but it'll float up to 5 if a prior financing is above 3 for a particular company. Those terms are written in stone for all time, but as of this exact moment that's what they are and that's what the were at the time of this blog post.
One other thing I'll point out that wasn't covered in the post, likely due to the timing of the event, is our first >= 100 million exit, which happened in the last month.
http://blogs.barrons.com/techtraderdaily/2014/09/23/stratasy...
Sam Altman had a great post recently about YC's indictment of timing pressure tactics on accelerator offers. We completely agree with that position and try very hard to not give that impression. Clearly sometimes that pressure is still felt even if it's not intended.
One issue that is relevant to us given our fixed class sizes is getting a definitive answer from an offer as quickly as we can so that we know if should move down the list and give an offer to the next team instead. Having 10 offers out and finding out that only 8 want to accept would mean we are giving out 2 offers potentially much later than the others.
Purely as a practical timing matter we hope to have a set of offers out around the same time and have everyone accept or dismiss them pretty quickly so we know who the class will be.
There was good discussion of this on a prior HN thread when @sama posted that blog piece. If I can dig it up I'll add it here.
EDIT: found it -
There was good discussion of this on a prior HN thread when @sama posted that blog piece. If I can dig it up I'll add it here.
Is Sam Altman involved with TechStars? If not, why is his name being evoked? It's great that you agree with him, but OP is saying that at least in his case, this point of view was not honored.
One issue that is relevant to us given our fixed class sizes is getting a definitive answer from a offer though as quickly as we can so that we know if should move down the list and give an offer to the next team instead. Having 10 offers out and finding out that only 8 want to accept would mean we have are giving out 2 offers potentially much later than the others. Purely as a practical timing matter we hope to give out a set of offers and have everyone accept or dismiss them pretty quickly so we know who the class will be.
I understand, but this is simply the universal rationale behind pressure tactics. Your desire for quick resolution is understandable, but the specific claim made in the post needs to be addressed.
>> Is Sam Altman involved with TechStars? If not, why is his name being evoked? It's great that you agree with him, but OP is saying that at least in his case, this point of view was not honored.
Sam is the president of YC. I'm invoking his name because it was a great post on a common accelerator tactic that we do not employ. The comments in that thread are very relevant. I wasn't invoking Sam so much as I was pulling in the context of that prior discussion on HN.
>> I understand, but this is simply the universal rationale behind pressure tactics. Your desire for quick resolution is understandable, but the specific claim made in the post needs to be addressed.
Actually not the case. As covered in the thread I referenced the reason that this pressure tactic is typically employed is that an accelerator is trying to force a company to make a decision before the deadline of a program that they view as a competitor, in essence front-running the selection process of another organization.
The point I'm making is that while we don't want to use that tactic, we can't afford to give an open ended offer up until the first day of the program because we'd risk having an 8 company cohort. It's less of an issue for YC to take an additional (or lose an additional) half dozen companies between their selection process and day one of the program because a) they don't offer workspace to their companies and don't have to do with those logistics and b) the uncertainty of +/- a few companies doesn't matter as much in a 60+ company batch as it does in a 10-12 company batch.
In the meantime, Troy sent over a Letter of Intent and explained that it needed to be signed and returned by Monday. I was very frustrated by this. You don’t send a legal document to someone over the weekend when their is no time for a lawyer to review it and demand it back by that same Monday. Whether it was the intention or not, this was a high pressure sales technique and just one more red flag.
Which is well put- "whether it was the intention or not." So, why wasn't Talkroute simply rejected for taking too long? If Techstars was concerned about an undersized cohort, they could simply sign another startup with no ill will - Talkroute just missed the deadline. No harm no foul.
A Saturday -> Monday LOI signing isn't typically considered a reasonable expectation.
Clearly the company didn't feel they had the option to take more time to decide. If that's the case that's on us and we can do better. I will absolutely assert though that if they needed the time they could have had it.
How can you say this in the same post you say this?
>Sam Altman had a great post recently about YC's indictment of timing pressure tactics on accelerator offers. We completely agree with that position and try very hard to not give that impression.
We give companies time to decide if they need it, we just don't give them unlimited time.
I have no idea if that actually happened or not, but this thread isn't really addressing the claim in the post.
Our LOI is not a complex document. It's one page long and covers 7 points.
1- agreeing to supply an official version of the cap table 2- representing that documents supplied to us are are accurate to the best of their knowledge 3- acknowledging that the team must relocate for the duration of the program 4- committing to fully participate in the program (show up and not have another job outside of their company) 5- agreeing to the dates of the program 6- agreeing to our equity exchange 7- confidentially clause regarding the offer
And a final clause states that while signing the LOI executes your agreement to our terms that "your acceptance of our offer is subject to your review and satisfaction with the formal contract provided". In other words signing the document is merely signaling your intent to participate in the program, but you aren't held to any specific clauses by signing.
This is not a document that is meant to be negotiated, there are really no terms here that we'd debate on, it's more of an outline of the deal so that you get it all in one place and have it in writing up front.
Based on this Quora answer, the cap is $3M with a 20% discount. http://www.quora.com/What-are-Techstars-convertible-notes-te...
Say you raise $1M on a $3.9M pre-money. The $1M investors wind up with almost 20% (a little less because the note investors pay the $3M price), the note investors about 2.6% (they get $130K worth of Series A plus interest), and the remaining ~77.4% is your former cap table, including TechStars, diluted by the $1M and note conversion.
I thought this post was well balanced and obviously everyone should make their own decisions based on their startup's particular situation...incubators, just like financing, are not a panacea that guarantee success.
Troy, Sam, Steve and all the folks involved in Techstars Chicago all do TS because they are extremely passionate about developing startups and building the types of outcomes YC has produced.
One of the stark realities of the Chicago startup ecosystem is the capital available to tech startups is really tiny compared to other places. As a startup founder, I've both raised money and failed at raising money...one of the biggest challenges of being a founder here are the sheer financing odds you have to beat which are necessary to even have a chance to achieve YC outcomes.
That's why 1871 looks the way it does- it's meant to attract entrepreneurs but it's also meant to attract money. It's a symbol of the growing tech community in Chicago and a way for potential investors who have not invested in tech previously to see tangible proof of a burgeoning ecosystem. That's the truth...while office space is cheaper in Chicago, 1871 provides the connections and "accelerated serendipity" early stage founders might need. Again- I worked out of there for a year and left because it was too distracting...it was the right place for the right phase of business.
When it comes to Troy, he is just about the most founder friendly person I know. I'm sure if the founder had spoken to Troy about his discomfort with the exploding LOI, I can't speak for Troy, but it's hard to imagine him not understanding.
I look forward to seeing the big outcomes- GiveForward, SpotHero, SimpleRelevance, SocialCrunch, etc. in the future.
Lots of co-working spaces are popping up all over Chicago, if you're in the market for space... pick a quiet one.
We're shopping for offices right now for the new company, and Chicago offices are cheap.
There are some tangible benefits from working out of a coworking space (I'm not sure you are advocating an opinion one way or the other regarding them):
- easier access to networking events. Certainly you can make the trek from your office over to where the event is, but there is an extra level of convenience.
- Access to other people. I was the only technical founder on our team, and just being able to talk shop with other engineers had real value. For the business guys, they were able to talk with other business guys and swap ideas and information.
- Manufactured Serendipity. This one is a bit of a stretch, but if you are around other startups, there is a small chance that something lucky can happen. Is it going to move the needle? Dunno, certainly more likely to happen than if you were alone in a garage.
None of these things should take away from what I think is the important aspect of an office: allowing people to work productively. If that part isn't there, then no amount of perks and benefits will matter.
* It's significantly more expensive.
* It's distracting.
* It creates an endless font of excuses to "network" and "talk shop" instead of powering through the schleps.
* It colocates serious companies alongside fundamentally unserious ones, leaving the serious ones to filter requests, drama, networking, &c.
For me, cost is dispositive. Put burning cash up against abstract benefits like "serendipity" and "talking shop" and I don't have a hard time making that decision. Last company, we wanted to talk shop too. We started a meetup. It worked fantastic. Do that!
Erin and I are signing a lease on the office for NewCo today. The space is depressing. We're in Oak Park to begin with, a 35 minute walk from my house, and you'd have to look to find an office with a window staring out onto a brick wall. We have two of those. It's perfect.
There's a time for spending some cash to make your work space pleasant. But not in the early days. Unfortunately, that's what coworking spaces optimize for.
When it's only the founders it isn't really more expensive especially when you factor in cleaning, food, coffee, etc. If you're growing beyond the founders then it probably makes financial sense to get your own office.
> It's distracting. > It creates an endless font of excuses to "network" and "talk shop" instead of powering through the schleps.
Only as much as you let it be. Put on headphones and get work done.
> It colocates serious companies alongside fundamentally unserious ones, leaving the serious ones to filter requests, drama, networking, &c.
To a certain degree but you're grasping at straws here. Don't want to talk to someone? Tell them you have work to do and don't talk to them. It's really not that hard.
Of course I can't speak for everyone. Some people simply can't adjust to working with other people around. Personally I prefer it, I find it inspiring.
Also, yeah... The food court is good! But that Duncan Donuts and Arby's certainly is my downfall... ha
Your math about dilution is completely wrong. That's a major issue right there. Then your math about expected success rate (claiming that TechStars has a negative impact on startups) is also completely off.
You did come to the right conclusion because you do not want to raise VC funding. That's it. That program is not for you, since your goals differ. From the tone of your post, you have your own way of thinking, fairly black and white. You naturally detected that there was a disconnect between your way of operating and TechStars'. So you didn't take the offer and my guess is TechStars is happy you didn't join either.
Good luck to your startup though. You are free to run your company whichever way you want (that's one of the beauties of startups).
A 1:1 ration is actually very good. The failure rate for pre-VC startups is actually much higher than 90%. 75% of VC-funded startups fail [1] but only a tiny minority of startups ever get to that stage. If Techstars really keeps up a 50% success rate that would be amazing (though I assume it will go down over time).
[1] http://online.wsj.com/news/articles/SB1000087239639044372020...
Since 2012 Alchemist Accelerator has advanced 64 companies according to CrunchBase. Of these, 29 companies have received more than a 1M raise and of these, four have raised around $5M at a $25M pre-money valuation.
http://alchemistaccelerator.com
http://bizjournals.com/sanjose/news/2014/09/26/ten-b2b-inter...
It's hard to choose where to start, as this blog post just misses it on so many levels. So, we'll just pick "Mentorship Is Not The Primary Focus."
This summer, we had over 150 mentors complete over 650 30m-1hr long mentor meetings with our cohort. On top of these meetings, each company was assigned a super mentor who worked closely with each team for at least an hour a week, throughout the summer. These mentors hail from companies like Groupon, GrubHub, Walmart, etc. and are not just random business people. On top of that, we spent countless hours with Troy, Steve, and Sam throughout the summer... often late into the night. The passion and care these people and this program exudes towards mentorship and entrepreneurial development is unmatched and, frankly, unquestionable.
Second, the assertion by the OP that "the focus on raising capital is just too strong" is curious and reveals a fundamental misunderstanding of the program. I concede that if you plan on doing an accelerator, you should most likely be planning to raise further investment capital after the program at some point. (As PG puts it, "A startup is a company designed to grow fast" and from what I see, usually this growth will be accelerated by the injection of capital.) After going through this program, however, I would say the focus in TS Chicago is not mainly on raising capital at all. Rather, it is squarely on building you as an entrepreneur in order to empower you to build your business, equip you to hustle up more traction, and provide you with the tools to raise money to continue accelerating your growth if you want. The leadership goes above and beyond to make themselves available to you throughout the program regardless of the business or personal need.
Third, the dilution math is just so bad. Other folks have addressed it in this thread, so I'm not going to go into detail. But geez.
Fourth, looking purely at the "valuation" you get for 6% for $18k is an incredibly short-sighted way to understand the value you are getting out of the program. Mentorship, the network, deep friendships, and core business knowledge are just a few pieces of the value added. But even if you want to add pure money related perks, please review this: http://www.techstars.com/program/perks/. Such free. Much hosting.
Fifth, demo day. At first, I was under the impression that demo day was all about pitching investors my business in the hopes of drumming up some interest in our next round of funding. After going through that process, my view changed drastically. I am more equipped to explain my business, our purpose, our plan, and the landscape of what we are doing than I would ever have been without it. Not only do I deeply understand the story of my business, but I can articulate it to investors, mentors, customers, and our team with a clarity like never before. I wouldn't trade that insanely challenging demo day prep process for anything.
Sixth, asking someone a pointed question about the specifics of your business in hopes that they have the answer to it off the cuff with (based on where that point in the interview would have happened) 30 seconds to consider your query is a poor way to judge the quality of their ability to contribute to your business over the lifetime of their involvement.
Finally, I'll end this discussion with these remarks:
TechStars is about relationships and equipping entrepreneurs. If you come into the program with a teachable spirit and are willing to listen and learn from the incredibly knowledgeable and generous people in charge, then you will come away with invaluable experience and tools to apply to your current startup, as well as to other businesses you may start throughout rest of your life. That is truly the offer on the table. Paul and co. missed out, but hey... maybe we were company 11? If so... thanks guys!
Granted, these perks do eventually go away and you have to have ample business justification for technology costs. But at the outset it's a godsend to know your business has the financial headroom to address any early technical challenge.
Benefits like web hosting / services credits allow all that financial hassle to get out of the way in the early game so you can just focus on delivering the best product possible.
List them. If you are going to use words such as 'game changers', you should explain what the perks are.
> Benefits like web hosting / services credits allow all that financial hassle to get out of the way
For most early stage startups, hosting costs represent extremely low % of expenses. Let's just call this what it is.. cheap way to lock start-ups in your infrastructure.
Same as investing.. give them a year worth of 'funding' and hope they become a massive paying customer.
They're linked in the parent to my original reply.
> Let's just call this what it is.. cheap way to lock start-ups in your infrastructure
Whose infrastructure? Perks come from Amazon, Microsoft, Softlayer, Rackspace, Digital Ocean, and others. That's a pretty wide swath of hosting providers, but I guess if you want to run your business from a couple of boxes under your desk, you're on your own.
> For most early stage startups, hosting costs represent extremely low % of expenses.
Cost is relative. $5k/mo for a year (citing the BizSpark Plus credit directly here) can make a big difference early on when you're pre-revenue. In the case of TechStars, this is particularly true if you decide not to take the convertible note.
Now there's an idea.
Okay how are they a game changers? How did they impact you?
> That's a pretty wide swath of hosting providers
They are still trying to do the same thing I described. It's a marketing play.
> If you want to run your business from a couple of boxes under your desk.
Been there, done that. Things were different ten years ago. Now you can get a VPS for a price of coffee.
> Cost is relative. $5k/mo for a year (citing the BizSpark Plus credit directly here)
It's $5K a month for a reason. They either have no traction or most start ups will never hit that limit or even come close to that price tag within the first year.
Sure there are exceptions, but if you are really pushing $5K /month on BizSpark at an early stage you should step back and figure out where you are now and where you want to be in a year after that credit runs out.
I hope there's no one in this thread naive enough to think otherwise. Of course it's a marketing play. That doesn't mean it can't benefit you.
Your initial point concerned vendor lock in and how this was a cheap way for companies to impose it. My response to that was "lock in to whom?" due to the diverse hosting providers on offer. Granted no mom and pop VPS provider is amongst the perk list (to my knowledge), but you have a several serious options to choose from.
In terms of my company the perks provided did anything but impose vendor lock in. I put parts of my infrastructure where it made the most sense for our business. This actually ended up being multiple providers amongst the list of those offering perks. If anything the benefits on offer from TechStars (and YES other accelerators that join these incentive programs) led to a more diverse and robust infrastructure setup which I hope will benefit us more in the long run.
But yes, fine, I acknowledged in another response lower down on this page that I should have qualified my original statement. The perks on offer were a game changer for my business because it gave us the freedom to choose providers and technologies that made the most sense for the product. For us this was crucial at an early stage and benefitted us immensely. I would assume our company was not necessarily unique in this regard, but perhaps I'm wrong.
In either case, who cares? You either were or weren't going to join TechStars or some other accelerator because the accelerator's terms made sense for your business when weighed against the benefits. Perks are just that...perks. Not fundamental lynchpins upon which you hope to run your business. My only initial argument was these perks are substantive and helpful, and shouldn't be dismissed outright. Apologies if that initial argument was not well-formed enough to get that point across to you effectively.
You're really going to need to elaborate on this. Some of those perks (maybe even all of them) are not things TechStars paid for.. they're things that other companies chose to give away to startups in an accelerator (of which TechStars is one).
I really don't understand why I should give TechStars kudos because they slapped Amazon's logo on a page and a short blurb about a program that Amazon has for startups.
This is a serious question: if Amazon (and Microsoft, SoftLayer, Paypal, and others) setup a program for startups, give the services to startups, and pay for those services from their own pockets... What did TechStars do to earn a share of the credit for those programs?
Of course they aren't. Many are conditional against being enrolled in an accelerator. However, like I said in a previous post, the linked article relates to turning down TechStars. Full stop. Not turning down TechStars for some other accelerator that offers many of the same perks.
> This is a serious question: if Amazon (and Microsoft, SoftLayer, Paypal, and others) setup a program for startups, give the services to startups, and pay for those services from their own pockets... What did TechStars do to earn a share of the credit for those programs?
They were a participating accelerator in that program, that's all (to my limited knowledge).
In relation to these perks being "game changers" it isn't about TechStars having better perks than Accelerator X, it's about TechStars allowing me access to benefits I didn't have before joining an accelerator that ended up being enormously helpful to my startup.
The "game changer" in my company's case was the peace of mind that comes from knowing that for a full year we can shave at least $5k/mo (once again quoting the BizSpark credit here for convenience) off of our operating expenses. That's a technology hire for us in the city where we are based. So, for us, it means a lot.
I apologize because I obviously colored my original statement through the lens of my company's own experience.
This statement:
> but some of the things offered by TechStars are game changers
should have been qualified by stating that it was coming from personal perspective. So, in the short term, these perks meant a lot to the technological freedom of my company based on our technology needs and the other places we could put those savings to work based on our business needs at the time. For my business, the perks made a difference and were a big help early on, they may not do anything for your business or others.
Some of those are programs that are open to any company in any accelerator.
http://aws.amazon.com/activate/
http://www.microsoft.com/bizspark/
http://www.softlayer.com/catalyst
Not really a reason to pick techstars over another program
Yep, TechStars is just one of many incubators and accelerators we've partnered with (and we're happy to take more):
https://cloud.google.com/startupsI guess it's to avoid having to vet each request individually.
Accepting them without any check means I'd create a new "startup" for each random page I put on the internet just to get free stuff, but having to verify each request may become a pain point quickly. Being part of an accelerator means that the work has been done by someone else.
* (both programs give addtl resources if you're in an accelerator though - amazon portfolio package and bizspark plus respectively)
When was this a debate about picking techstars over any other program? The article relates to picking nothing as opposed to joining TechStars. I think these perks are a little harder to come by when you turn an accelerator down for the no op as opposed to "I picked accelerator B instead of accelerator A".
I'd tell you that if you wanted to do an apples to apples comparison of accelerators we should save that for another thread lest we get too off topic, but that hasn't stopped others in this thread from turning the article into a TS vs Other Accelerator debate, so why should it stop you?
Not sure why you feel so passionately about this.
No, an exchange of equity for money should be reviewed purely as such.
It's certainly in one party's interest to cloud the judgement by throwing in a bunch of free stuff, but that's also what used car dealers do when they "throw in just for you" a free carwash, a full tank of gas and, heck, why not, some free floor mats to close the deal.
Unfortunately for OP, they miss on each point by about a mile, come across as bit inexperienced (even arrogant) and at the same time lost on an opportunity to learn about building and growing a high tech business.
1. No Large Exits. Large exits are few and far between in general. On the other hand, TechStars has very few (~10?) startups per batch in any given city which could be why they haven't seen large exits yet.
2. Progress Stats. Don't see how an accelerator can help you hustle growth and how this is a relevant metric for evaluating an accelerator. Hustle is something that will always be squarely in founders' court and while mentors can help you with advice and intros, the results will largely depend on founders' efforts. If you are B2B, then access to alumni company network could be helpful.
3. Raising Capital Does Not Equate to Success. No, but it is very important particularly at an early stage where your sole purpose is to build something people want and grow it as fast as you can.
4. Equity. Math is wrong. Also, see above on the implied valuation point.
5. Mentorship Is Not The Primary Focus. I have no basis to judge this but highly doubt that OP would have any basis either since they didn't actually go through the program. Focus on demo day makes sense, especially as you approach it. Raising funding and giving your business a runway to growth is important.
A true measure of comparison would be to see the performance of companies that participated in TechStars Chicago, and not just TechStars as a whole.
Your access to the TS network is the same regardless of your location and that's the important part.
The mentor selection, who attends demo day, who holds office hours, all differ by location.
I think it was a brilliant self marketing tactic. And then they have the balls to post it here, lol... Love it. I think we are all witnessing a genius marketing stunt that is going to be the topic of discussion in the future.
What's more, taking the opposite stand is good for the little guy. In the first part of his book "Soul" Aristotle devotes the first book to refuting previous famous writers on the subject. Rousseau did the same in the first book (I believe) of Social Contract. Socrates did the same in ... well ... everywhere.
For something more recent, Apple was anti PC, I am sure Linux was anti-Closed-OS, Snapchat is anti Facebook and all these made it public, which in turn did nothing short of helping them.
I think that their choices were sound business. However, you don't voice things that make other "industry players" look bad. This is ultimately a pretty small world and people in our industry tend to move around.
It just takes one guy from that VC to leave for another investor they might want in the future to blackball them. That is what I was trying to say.
If anyone on HN have been through any Techstars programme and are prepared to comment on the experience that'll be super valuable.
http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-i...
Easily one of the best things I've ever done. I'm not sure how to compare it to other Cities, but it was certainly a benefit to our company.
Edit to add:
The 3 month program was broken up roughly into three chunks:
1. Achieving Product Market Fit 2. Product Development 3. Fund Raising
Depending on the stage of your company, you spent more or less time in each of these phases. We were relatively mature from a product market fit standpoint, so we focused our time between Product Development, Signing Customers, and Fund Raising.
Add the TechStars network, the "prestige" of being in TechStars, and what essentially amounts to a 3-month pass to ask for help from businesses, and it felt like it was a great experience.
We found the program immensely valuable. The network you get connected to is almost worth it alone. The actual 3 month program is what you make it really. You get connected to amazing mentors, are expected to meet weekly milestones, and are offered the chance to hear many talks from prominent investors/entrepreneurs. How you decide you and your team act on these opportunities is where the value can be relative and vary per team. Some teams don't like the structure, some do, and some just keep their head down for the 3 months and pay little attention to who comes in the Techstars office door.
This person's critique of the program seems a bit off to me. As other commenters stated, his math is off on the equity calculations (we just finished our first raise and certainly didn't give up anywhere close to 50% of the company). Getting upset because a couple of people couldn't provide a detailed, helpful answer very specific to your startup after hearing a 10 minute pitch about it is a bit too critical, in my opinion. And I wouldn't read much in the request to sign the paperwork by Monday. It was likely oversight, and personally, if I needed time, I'd have told them that instead of interpreting it as some sketchy sales tactic and getting upset.
That said, the program isn't for everyone, and it can of course be improved, so maybe they made the right decision in the end. I just don't think they had enough evidence (or at least interpreted that evidence fairly enough) to ever know at this point.
Capital clearly is not the best proxy for success or trajectory, but it's a visible and widely available (usually) metric.
Could be that Techstars are smart about picking startups which have low working capital. More likely is that the best startups in London and elsewhere are run by people who have access to mentorship by hustling in their own network, and raise money by being good at execution.
Techstars Austin was an invaluable experience for our team. It seems like the founders did not factor the opportunity for personal growth when they made their decision. Some may argue that the company's growth comes first, but sometimes that can only happen when the founders are growing too.
We were the youngest company in our class. We actually used the Techstars investment as a means to incorporate and set everything up. Another factor is that all of us were first time founders. Come to think of it, I'm pretty sure all 11 companies in our class had first time founders.
The Austin program was broken into three phases:
Month 1 - Mentor Meetings: For the first four weeks we had dozens of meetings with the program's mentors. The mentors were a healthy mix of past Techstars founders, angels, VCs, and biz dev partners. It was exhausting at the time (5-6/day, 4 days/week), but definitely worth it. We used the meetings as pitch practice, and iterated how we described our business along the way. I also learned a lot about my co-founders in those meetings. Seeing them describe our business to other people was very revealing about how they felt about things. Super valuable.
Month 2 - Development: The second month was all about taking the first month of endless feedback and getting to work on advancing our business. We used the second month to build our MVP, speak with potential customers, and build partnerships. The Techstars staff was hands off, but were a big help whenever we asked for it. We accomplished a lot in our second month.
Month 3 - Fundraising/Demo Day: The Techstars staff started to get more hands on in the last month to help us with our Demo Day pitch and fundraising plans. There was more structure, but we had the absolute freedom to do what we wanted. It was a bit distracting from our business the last few weeks, but the experience of Demo Day was amazing and completely worth it.
I highly recommend Techstars for any company with first time founders. We were able to go from polished idea to MVP within three months, and achieve a high level of personal growth at the same time. It's also worth mentioning that I now have 50+ amazing new friends that went through the same experience I did.
TechStars are in #2 and below markets, each of which is easily dwarfed by Silicon Valley. So while TS (and other accelerators for that matter) don't have as much success as YC, I'd love to compare the stats of local companies that were in TS relative to the expected performance in their respective markets.
The internet these days is much like McDonald's, instant gratification and quantity over quality.
Also (without reading the article) why did they apply if they knew they didn't like the deal in the first place? Aren't they wasting everyone's time, starting with their own?
That is, from all I can see, the situation in the OP, admittedly only from an accelerator, is much like that in essentially all early stage VC firm equity funding. That is, as in the OP, I'm failing to see how "both sides of the table" ever have much chance of shaking hands.
Why? From all I can see, and as mentioned in the OP, to be considered for any funding at all, even via an accelerator, the startup needs to have a product that has traction in the market with that traction growing.
Before that traction, the guys with the checkbooks are not interested. With that traction, like the guys in the OP, I wonder why the heck the founders would want to take the term sheet, deal details, check, Delaware C Corp., Board of Directors, etc. instead of just growing, as in the OP, "organically".
Sure, I can imagine some exceptions, but the OP company was just two guys. Moreover, in the currently running Stanford course by Sam Altman and YC, the strong advice is to have 2-3 founders for a long time and be very slow to add anyone else.
So, the OP company had two founders, traction significant and growing, and, thus, qualified for some funding but with so few founders likely had expenses only at the Ramem noodle level and had some revenue and maybe free cash flow.
So, why take an equity check and all that comes with it instead of just continuing to grow organically?
Or, net, in simplest terms, it appears that by the time a startup, based on information technology and software where the product exists and has traction and was developed by a team of just 2-3, qualifies for funding, it will rarely still need or even want it.
So, I'm losing just where the guys with the checkbooks expect to find startups they want to fund that will take the funding.
Yes, I can think of some exceptions, but otherwise, again, I'm not getting it on how anyone could expect the two sides of the table to do a deal?
Two more points:
First, all across the US, Atlantic to Pacific, border to border, in crossroads, villages, up to the largest cities, the US is just awash in successful small businesses with 1-3 founders, often just 1, who do well. Indeed, from all I've seen, most of the nicer houses, 50 foot yachts, full tuition checks at private schools and colleges, late model luxury cars, etc. are paid for by such small business people.
These successful small business people rarely went to business school, never watched lectures on business such as the current YC course at Stanford, never went to an accelerator, and never got VC funding.
For being an information technology startup with a product just software and written by just 1-3 founders and with revenue, that should be one heck of an advantage compared with nearly all the rest of these millions of successful small businesses. If those millions of US small businesses can get to a good life style business, then the founders of a good information technology startup should be able to, also. And for further growth, a successful information technology startup should be able to generate plenty of free cash flow -- some software on a server can run by itself and make money sending ads 24 x 7 but for a guy with a successful pizza shop, or 10 such, each pizza has to be made by hand.
Then, with that nice start as a lifestyle business, maybe that information technology startup could continue rapid growth to be a major company.
I know; I know; there is a PG essay that a startup is intended for explosive growth and, thus, needs equity funding. Okay, but I'm missing just why the founders won't be happy with $20 million or $200 million and, instead, want to take on a lot of financial risk and burdens shooting for $2 billion to $20 billion. A rich guy can easily say, "I wouldn't walk across a street for another $1 million.".
But in all of this, I'm missing just where the accelerators or early stage VCs have a meaningful role to play. The VCs look like the Drawback on a football team, a third person twiddling their thumbs in a two person canoe, a fifth wheel on a wagon, mammary glands on a boar hog, or someone who wants to buy a ticket on an airplane after it has already left the ground.
Second, I have to be reminded of the Mother Goose story The Little Red Hen who found some grains of wheat but discovered that no one wanted to help her until she already had on her own built a bakery and had hot, fragrant loaves of bread and a line of eager customers and didn't need any help.
The whole point of an "accelerator" is you do the same thing but faster. You get your business to where it would naturally be in five years time (whether that be success or failure), but you do it in one year. To some people that's valuable.
This is also a big one. Your time as a founder, especially in a new start-up is invaluable.
Viewing Demo Day as a tool that's only useful if you're fundraising on the back of it is incredibly shortsighted.
I also think the founders know better where the time needs to be spend and at what stage they should focus on PR.
Cookie cutter approach does not work for everybody.
If that were the case then accelerators wouldn't exist and the "national rate of failure for startups" wouldn't be 75 to 90%.
Techstars is a NETWORK. For us (Boulder 2013) it was a window into a world we only saw through occasional blog posts. Techstars is a NETWORK of crazy people who risk everything to start companies. Some of those companies are absolutely amazing, and we have access to their founders, we know them personally. We never even dreamt of such honor.
Before Techstars, we had access to our desks.
For first-time founders, Techstars is truly an opportunity of a lifetime.
If you get accepted, do it. Don't listen to these fools.