EDIT: The tone of this post was clearly a bit off from my original intent. My main point was that it seems that the founders involved here are pretty much going all in by quitting their jobs for 3 months, whereas the investors are taking an incredibly small risk compared to other investment routes. Most of the other funding sources I’ve seen (Angel, VC, Bank Loans) at least provide some protection for the founders. (End of Edited Text)
As a developer whose participated in a few business plan / start-up competitions, it seems like everybody and their brother tells me to look into Techstars. I was pretty excited at first. Seed capital to get started and access to mentors, seems like a good idea right? After reading through the details, it’s definitely something I have no interest in. In all honesty, I think they’re misrepresenting themselves for a few reasons.
First of all, they prominently display $18,000 as the available seed amount in several locations. The amount is actually $6k per founder. Again, at first it seems like a great deal, but this is $6k/founder over 3 months. In the Greater Boston area, $2k per month is barely enough to cover rent and utilities and only slightly more than Wal-Mart pays. There is one difference though, Wal-Mart doesn’t ask for equity in your ideas. This leads to the second point.
Techstars requires 6% equity in your company. This seems a bit steep for a $6k investment. I know it’s very early seed money, but valuating the company at only $100k seems pretty lame given their rigorous entry process. Since 60% of the companies have received Angel or VC funding at the end of the program, which was likely at least $1,000,000, Techstars must me pretty damn lucrative.
Keep in mind that the Manchester Young Professionals group managed to scrounge up $25k per business plus another $25k in services. A small professional group in Manchester can front more than a group of investors in Cambridge?
I’m not expecting that Techstars should give money without gaining equity in the company. Trading equity for seed funding is common. However, this seems less like an organization that wants to help business get started and more like an organization that charges 6% equity to give you a meeting with some Angel and VC funding sources. Many of these investors are also likely at various start-up events that cost only a few hundred bucks. (See Speed Venture)
In the end, Techstars isn’t all bad; they’re just not representing themselves accurately. If you need $6k to get your company started, there are better places to get it. In the end, you’re not really getting seed money as much as you’re trading equity in your company for a few good networking opportunities.
I may be completely off-base here, and I’d be happy to hear from anybody at Techstars or their companies if I’m wrong.
Yes, you are completely off base here. If you think that all it takes to start a business is money, they yes, TechStars is not right for you. It’s funny, when I applied, I had those same “man, they want 6%?!” thoughts that you’re describing. Then I did two things. First, I did the math. If you think you’re not going to come out of the summer (of Spring next year) with, and let’s round up here, 107% of the company you came in with, yes, don’t apply. The second thing I did was talk to founders of past companies. Every single one chuckled at the thought of even caring about the equity they traded to be a part of TechStars. They used words like “stupid”, “trivial”, and “confused” to describe their initial trepidation, and joked that it took them a while to realize that they got the best deal in startup-land.
So yeah, is 6% a lot of your company, sure. It’s a HUGE amount. It’s more than your first employee will likely get, then most individual angels might buy, it’s more than a founder might have earned after a whole year of work. It’s a lot. But when I look back at what we received in exchange for our 6%, this TechStars alum knows without a doubt, that we got the deal of the century.
I’d be happy to schedule a quick call with you to explain what we are doing in greater detail. Let me know if that’s of interest. I think you’d be surprised. Ping me at David at TechStars dot org.
@Tom
I think I focused a bit more on the 6% than I intended to. While it’s an area of concern for me, it’s not my primary one. My though it more that it seems more unexpected.
In the end, this post is less about the 6% and more about the $6k. I’m currently in a position where I’m starting a company with 2 other people. For all three of us, $6k over 3 months isn’t enough for us to be able to devote our full time to a company.
It would leave all 3 of us with 2 options.
1) Working full-time, for 3 months would complete exhaust our finances. With the current job situation, that means we would likely be financially ruined if we were in the 30% that didn’t get funded.
2) We would have to maintain side work to pay the bills, which would reduce the chances of the company succeeding.
I would be very interested to hear how other companies make this work. Is it all personal savings? Other funding? Loans?
In all honesty, if I had enough savings to last me for a few months, I would be all over this. However, I can’t afford to risk my family’s home for it.
Just found the post, looks like quality comments and outreach by Tom and David. Just saw your edit and would respond that all of the founders we have accepted are building companies fulltime, before and especially after the program. This is not a great program for those looking to work halftime or build a project.
A lot save up to do this, a few raise a early friends and family round to do so. It is a tough situation, but one that can be planned for and is achievable.
This is a post by a past founder, which I find fitting: http://georgeaspland.blogspot.com/2009/08/techstars-changes-everything.html
Ian,
Even a few months savings really isn’t enough. I also have a family and a home, so this was a big decision for me as I left a good, stable job to start TempMine / enter TechStars. You can’t count on funding being there the second the summer ends, or in Boston’s case next year, the second the Spring ends. It takes most teams time, often six months or more, to raise their rounds, if they’re successful at all. Couple this with the fact that Boston is just plain expensive, and yes, the $6k per founder isn’t much. I think it’s doable for a single founder (as in not married, not a solo founder), but without pretty substantial savings and life changes (ie: be cheaper then you ever thought possible), it’s really not doable for someone with a family, mortgage, etc.
So maybe this isn’t the right thing for you. Maybe a more traditional route of maintaining a full time job while trying to get your prototype / MVP built would be a smarter move. Of course, there’s nothing stopping you from going that route, and then applying next year after you’ve had more time to save. A few of the teams this year were pretty far along (ie: production code with products released) , so no one will fault you for building something before applying. I can’t speak for David aor Shawn, but it might even help your chances.
Feel free to ping me with any specific questions.
-Tom