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question about accelerators taking equity

I was recently selected to be considered as a semi-finalist in an
accelerator program that is relatively new, in a city that is not a
traditional "startup" city. They will have 20 semi-finalists, which will be
down-selected to 6 finalists after a thorough end-to-end business review.
All startups involved get the results in report form of the business
review. In order to cover the costs of this review, the accelerator program
requires all startups wanting to be considered for a finalist slot to give
up 1% equity or pay $2500, regardless of whether they are actually chosen.
All finalists would then give up around 6% more equity, and the benefits
would be  the same as a normal accelerator program--some cash, exposure,
mentorship, etc.

What do you all think of this model?

Cheers,
*Chandra*
*CEO, tripchi*
--------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------
*tripchi is a mobile app that helps you make the most of your time in the
airport.* It serves up recommendations of things to do in the airport based
on your personality, interests and flight info, and offers *exclusive deals
on food, drink, and shopping opportunities*, the ability to *connect with
other travelers*, as well as detailed content to *explore the airport*.

Sign up for our beta at http://edu.surveygizmo.com/s3/1124579/Airports>
.

Also, check us out on CNBC <http://www.cnbc.com/id/49762594?slide=27> and Women
2.0<http://www.women2.com/emc-innovation-market-promoting-woman-powered-i...>
.
--------------------------------------------------------------------------- --------------------------------------------------------------------------- --------------
Chandra L. Jacobs, tripchi CEO, Thunderbird MBA grad, world explorer
c...@tripchi.com       Phone: (703) 785-0621
@tripchi on twitter

Thunderbird School of Global Management
#1 "International" Full-time MBA (U.S. News & World Report 2013)

"Borders frequented by trade seldom need soldiers."

18 Replies

David Hauser
0
0
David Hauser Entrepreneur
Young Entrepreneur, Speaker, Founder of Grasshopper and Angel Investor.
I would never give equity for something like this and stay away from
any type of money or investment that requires you to pay anything.
This includes paying to pitch to VCs. I have never heard of this
specific model but I would be very cautious.

Omar Paul
0
0
Omar Paul Entrepreneur
VP Product at Shango

I agree.  Pay-to-pitch is something to stay away from?and an accelerator model where you give up equity even to be considered is not right.  I have never seen anything like this either.  

- Omar.  

@omieomye on twitter | facebook.com/omieomye | linkedin.com/in/omarpaul
Sent with Sparrow (http://www.sparrowmailapp.com/?sig)

Dave Angelow
0
0
Dave Angelow Entrepreneur • Advisor
Board Member at HAND Austin

Hi Chandra

From your post I assume you have some interest in the opportunity or you
would not have posted.  The question is what do you see as the benefit to
the program?

Based on the description below it's not clear there will be significant
benefit to your business and unless there is something significant to the
insight that you'll gain from the end-to-end review it may not be a
worthwhile investment of time.

In the spirit that most everything in life is negotiable, I'd suggest you
determine the "value" to you/your business to being involved in the
program.  With this information in hand you can offer the team leading the
accelerator program a deal and create something that works for both of you.
It puts you in the driver seat to decide how much the program is worth, and
you're the best judge of it's value to you/your business.

The reason for suggesting this is you both have interests in making
business happen.  Developing an offer that considers your interest (assume
speed your launch, find gaps in end-to-end model, etc are your goals) and
the accelerator's interests (good companies to work with and some amount of
income to cover costs, etc.) you'll likely find a proposal that's balanced
and works for both of you.

Hope this helps!

Tom Hooper MA CFA
0
0
Tom Hooper MA CFA Entrepreneur
Founder at Know Maths

I totally agree? perhaps you could ask them to explain this to you and then post it in the forum for all of us to read?

I think they sound dodgy.

On 7 Jan 2013, at 16:02, Alex Neth <a...@liivid.com> wrote:

Vishal Parikh
0
0
Vishal Parikh Entrepreneur
Co-Founder at HealthEquity Labs

I think we're all agreement that the 1% thing is shady at best.

In general, I am very wary of giving away 6% to incubators.  Often times
what you get back is not worth it.  You have to look at your alternatives.
 Are you capable of getting this company off the ground without the
incubator's help?  How long would it take you?  Would this amount of time
be considerably shorter with the incubator's help? How much would they help
in the long run?

Other than the top tier incubators (YC, TechStars) these incubators have an
extremely low success rate.  Even the top tier incubators have a pretty low
success rate (remember, getting a series A is NOT success).  If you have no
idea how to start a company and you have no mentors or experienced
cofounders, then an incubator may be useful.  But if you're at a decent
university or part of a good community (e.g. Founderdating ;-) ), then you
may find all the resources you need without having to give up so much
equity.  Incubators are not magic bullets.

0
0
X
Entrepreneur

Sounds pretty hilarious, but you could negotiate 1% vesting if they had a
great team of reviewers that would also be willing to stay on in an active
advisor capacity over the next three years.

Devin Fee
0
0
Devin Fee Entrepreneur
Director of Operations at Chiron Health

Even if you define success as raising a seed round, top tier incubators
aren't nearly as successful as you might think.

I worked at TS.

Keir Reynolds
0
0
Keir Reynolds Entrepreneur
Chairman and CEO of MEZZI SMART LUXURY

Chandra,

A couple of questions for you:

1. How long has this program been around? The last few years have been very hot in the tech startup world and as a result accelerators have been popping up at a rapid rate.

2. Does this group have any good success stories? Beyond getting a few companies to a small series A.

3. Is this your first startup? I looked at your website and AngelList but couldn't find much out about you and your team.

4. What guarantees if any is the accelerator making to you?

5. What are you hoping to get out of an accelerator program? Many times, I see both the startup's and the accelerator's disappointed because they had different levels of expectations. Make sure you are clear. If you are seeking funding and some PR, there are many other routes and an experienced co-founder may be more up your alley.

From your description, this sounds a bit suspect as this accelerator probably has a graveyard of minority holdings in companies that they don't have an interest in. As others have said, a group like this might be of more value.

Possibly, we could take this discussion offline and get on a call. I'd like to find out more about your company.

Cheers,

Keir B. Reynolds
President

MAMMOTH MARKET ADVISORY CORP.
#950 - 1199 West Hastings Street
Vancouver, B.C., Canada, V6E 3T5

Direct  [removed to protect privacy]  
Email   k...@mmadvisory.com

On 2013-01-07, at 7:44 AM, Chandra Jacobs wrote:

Tony Clemendor
0
0
Tony Clemendor Entrepreneur
Founder/CEO - GiftWow, Growth & Operations Guy, Startup Advisor

Chandra,

I went through a different program out here in the Bay Area.  Before I
chose them, I researched a lot of the accelerator options and I never came
across one that requires equity just to be considered.  Having gone through
my program, my opinion is that the equity is possibly worth it if the
program provides an education and framework that truly helps to move your
project forward.  That said, being "considered" for a program doesn't
actually do anything to help you progress.  The fact that they are asking
for equity or cash before they have provided any actual value to you sounds
like a huge red flag to me.

If you decide you want to move forward anyway, I would suggest looking for
reviews or comments from past graduates of the program.  Quora might have
some.  If you can't find any graduates, that would be another red flag for
me.

My $0.02

Tony Clemendor

Jose daVeiga
0
0
Jose daVeiga Entrepreneur • Advisor
Technical Due Diligence & Operational (SaaS Services) Expert

Don't do it.  NEVER pay anything upfront unless there is an actual
measurable tangible good on the other side. Anything else, only with well
defined and reasonable backend pay on well defined (and reasonable too)
goals is the only thing that makes ANY sense.  Not the case with the folks
you are talking about.  That's it.  If you want to know why I am saying
this read the rest of my email...otherwise, that's it :)

Here in LA some Angel Investor groups have asked for $ to pitch (rightfully
enraging Jason Calacanis :) and others get you in but then have "coaching"
and for that ask for equity or $.  My take is that I am still to see or
even hear of any respectable, useful, truly well intentioned investor ask
for anything upfront.  Equity is even more than money if you really believe
in your gig.   Upfront % of equity, ONLY with well defined terms.  1% if
and ONLY if XYZ happens/is met/etc.  Otherwise, the equity is mine to use
on someone who can get me help to make XYZ happen. Show me the goods, I'll
show you the money.

I had people claim they have a rolodex that would open the world to me -
but AFAIK they are not even out there living off of the sucker who would
have paid them for that. They all turn out to do something else a couple
years later when I ran into them...probably because they were seemingly not
even good at getting money out of suckers - moreover capitalizing on
successes of the ones who did give them money (IMO if they did, chances are
they are suckers and will never go far anyway).  In my experience this is a
"giveaway" that applies to business in general.  For example, even M&A
companies that ask for upfront to "represent you" turned out shady and
lacking - if there is a deal, why charge the 5k per month to "represent"
you?  We're talking a payout of hundreds of thousands at the end and you
cant eat up a 15k loss for the 3 months you worked on the ones you don't
cut?!?!?   Next!   One more, attorneys who represent you for example for
patent infringement (we talked to more than a few), they eat up all the
cost and take 60% of the payout.  Attorney's value is their time... so if
pro's in the patent litigation world can eat it up...the ones who cant, are
probably not pros. Don't do it.

Here is my rule: "Backend pay" (unless for goods or very well
defined/tangible services).  And it extends beyond investment groups and
pitch fests, services, etc.  In some cases I've gotten this out of actual
products (IOU terms based on future goals).  You see, in a startup
situation, it's ALL about future value.  Act as if every dollar is the most
precious thing.  Don't spend it unless you REALLY have to and there is
absolutely no alternative to get that which you cant live without.  That's
it.

You will find out that you can get things from people you would never
imagine.  For example, BEFORE we had a penny our very experienced PR firm
cut us a deal where they would ONLY get paid 20% of their fees monthly and
then the rest plus some interest on specific company (my company) future
milestones - in that case with accelerators for some special stuff (like
being featured on some specific show at a specific time on TV, etc).  They
only got paid if and ONLY if certain things were met (for example, revenue
reaching a certain level, investment above a certain amount, etc). I
developed the personal relationship and they came via one of our service
providers (which also had a major no-money-upfront deal with us).   They
knew the value they had to bring, the impact they could have, they believed
in my vision, and they understood the risk (and rewards).   A good Litmus
test is that good, solid, experienced people who deal with startups don't
ask for deals where they get paid upfront.  People in the startup world are
into risk.  That's the given.  Anyone who does not know that is just
looking to get your "present" money, not your future value.  Of course
everybody needs to pay expenses and to live.  But that's the deal, startups
are not normal business transactions until they find a business model
that's repeatable.    If anyone is in the business of benefiting from
startups, and they are not straight up service providers like hosting
companies (even those will cut you a startup-like deal), then they should
know this: startup is all about future value and dealing with a startup is
an investment of high risk. No shame in begging, pleading, nagging, and
outright shamelessly asking for it (if your intentions are good and you are
hones, of course).  If they get offended, just say "it's a startup" and
explain what that means.

Push for it, and you'll find out even service providers can cut you amazing
deals - our very large SMS aggregator and our Stats Feeds companies did.
We could never had done anything without those two.  I begged, haggled,
pushed, and outright shamelessly said I wanted to do it but could not
afford it.  They gave me a great break.   Why? Experienced people cut deals
where they make the bulk of the pay when things evolve based on their
contribution.  The best even bring others who can also contribute because
they want help reduce the risk of their deal with you.  With me this
happened especially when it came to getting help raise funding. Such deal
was that this specific person would only get anything upon a successful
measurable event - that guy went all out (and spent a lot of money on
travel to meet with us at some huge industry names - investment, businesses
and people who ended up on our board).  This guy is a veteran with huge
results/track record - if anyone could ask anything was him...his was the
fairest deal of them all - why? because he was sure he believed in us and
he was sure he could measurably positively impact our success.

In short, NEVER give anything upfront unless there is an actual measurable
tangible good on the other side...anything else, well defined and
reasonable backend pay on well defined (and reasonable too) goals is the
only thing that makes ANY sense.

Jos?

--
Jos? daVeiga, Ph.D.
jose.davehttp://www.linkedin.com/in/josedaveiga
--

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