TechStars is doing something similar to what YCombinator has done – they’re funding 10 teams with up to $15,000 in seed capital and providing office space, operational support, and mentors from business leaders (and potential follow-on investors) in Boulder, CO. In exchange for the investment and everything else, the teams give up a meager 5% equity position in their companies. Our previous profile of them is here.
Ten startups ideas have now been selected out of 300 applicants.
All start-ups move to Boulder on May 15 and the program starts May 21 for 3 months. There will be 3 evening sessions each week that’ll give the teams access to 40 mentors for personal meetings and panel discussions. They’ll also have extensive meetings and access to the four founders of TechStars – notable VC Brad Feld, David Cohen, Jared Polis (founder of BlueMountain and ProFlowers) and David Brown.
Information is vague at this point on the selected start-ups, but two of them are Socialthing! and Intense Debate. Socialthing! is going to be doing something in the social networking space and Intense Debate has something to do with real-time debating online.
YCombinator’s model is similar – they give $5,000 plus another $5,000 per founder and take 2-10% of the start-ups’ equity. The model has worked – one of their investments, Reddit, went on to be acquired by Condé Nast last Halloween.
Of the selected teams, founder ages range from 20-36 with median age at 25. Seven of the teams are B2C (social learning, social networking, social media, mobile, social media sharing, alerting/messaging, local/community) and the other three are B2B (SMB/new media, infrastructure / VOIP response, enterprise social networking). One team has a partner coming from Sweden, while the other teams are all from USA (NYC, Philadelphia, St. Louis, South Carolina, Denver, Seattle, Jacksonville, LA).
Of the applicants, 80% were between 20-30 years old – youngest was 14 and oldest was 62. Of the ideas, 75% were B2C, 20% B2B, and 5% “public good”.
Editor’s Note: This post by Steve Poland, co-founder of WeBothLike.
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This is what I love about web 2.0..everybody who is smart has an equal chance…well almost equal chance..it would be exciting to see if these companies become the next “it” thing
I guess even if a couple of these start-ups hit the big time, they will get all their investment back! (+ bonus)
Actually YC gives $5000 + $5000n, where n is the number of founders. So $15k for a startup with 2 founders, $20k for 3.
The percentage you quote is also wrong: YC takes 2-10%, with an average of 6%.
As an experience alone these events will shape individuals for the better, even if these first attempts fail, I would suspect that the connections and happenings set the partakers up with skill-sets set for further things to come.
5% does not seem meager for that investment level.
I realize that these founders may be young and hence the potential risk is great , but 10 startups means $150K in investment capital, plus office space (which is usually small and cramped), and as for ‘operational support, and mentors from business leaders’, ask any of the Y-Combinator guys how much of this they receive.
Total investment is probably coming out at around $350K or slightly less. And for that the investors get 5% of 10 companies. This is less money for an angel round in one company, often with founders with the same credentials, but that investment is usually a loan at 6-10% with the OPTION to convert at the next funding stage.
This is an expensive $15K for the founders and an unbelievably cheap 5% for the investors.
Paul - sorry for the error. I just fixed it.
youngest was 14… this guy will be somewhere when he is 20.
It is ludicrous to say 5% is meager without knowing the specifics of each deal.
Think TechStars would’ve funded my latest endeavor?
http://www.firesidechats.tv
- It’s a proof of concept for something larger, hopefully.
I work for one of the groups, still in semi-stealth, from the last YCombinator round, I’d just like to point out that whilst it might be considered these start up schools are getting a lot for little investment we also have been given exposure to people that we’d have struggled to meet otherwise; that is VC’s, angels, people that have made it already… These things cannot be priced. Also on top of that we all know how clique VC’s are and as such when VC’s and angels like those running the start-up schools give your startup some lovin’ then they’re all the more interested in you.
It is like a fresher getting opportunity to act in a big budget movie. All the best for those who get opportunity. So its more to come…
http://www.suggestusability.com
5% is a lot, but unfortunately for young entrepreneurs there aren’t many other options. TS and YC both provide a lot of support for the equity they take.
I am from one of the teams selected to TechStars.
Couldn’t be happier at the moment.
TechStars is also about the town of Boulder emerging as a hub for web startups.
I’ve raised money multiple times and yeah, the valuation on these deals is low. But I spent several years banging on a lot of investors & VC’s doors learning how this whole equity investment thing works — not just the mechanics of deals, but how to pitch them. I’d have gladly traded the equity in my idea when I was 21 to take a shortcut to what I eventually learned by the time I was 30.
Seems like a good program. We’ve put together a similar program at Yale University, but the students selected are not giving up any equity to partcipate. The University has put up funds as part of its support for science and technology(as well as for economic development reasons) and also has no ownership of any intellectual property developed. We’re bringing in speakers who have Yale ties who have had success - many of the web 2.0 companies you write about Michael were founded by Yale students (Meebo, VideoEgg, LicketyShip, Justin.TV - just to name a few) and Yalies have founded businesses such as FedEx, Real Networks, Palm, and Handspring. New Haven is also a great place to start a business. We have built Higher One (www.higherone.com) here from ground 0 to a profitable business with tens of millions in revenue and know others can have similar success. We’d love for you to come visit sometime this summer.
check out http://www.yale.edu/yei
This image makes a fool of an American.How do you think to see this?
http://up.nm78.com/dl/11825.JPG
What a great idea! We need to see something like this in Aus. And then maybe I can get some ideas out there
I’m surprised so many people think that giving up 5% of their ownership to get off and running is so costly. Considering the exposure and connections, 5% is nothing. Toss in that there is cash behind it and I’d gladly give up 5% of an early early stage startup for a chance of getting going.
5% of nothing = 0
95% of something = a pretty big slice of the pie
5% is not meager. and that is something that has been echoed after every post about techstars and ycombinator in the past year. why, michael do you continually insist on calling it “meager”?
How do the founders pay their bills on these small sums? Rent, food, insurance, etc. Not sure how long these sums are meant to last them either.
I understand if they are college/grad students whose living expenses are being absorbed through other means, but the age stats you cite seem to indicate older people are also in these companies.
Are they only working part-time on their TechStars/YCombinator funded ventures?
Motown, its called living frugally. Welcome to startup life. No, these guys work for as long as they don’t feel tired..
Any details on who the team from St. Louis is?
That’d be us, digitalsoap (we make socialthing!)…
Interesting, Colin. That’s exactly the same argument we used when giving up 90% equity for $8M. This may be the fairest solution, and one must understand that capital_is_king. There are just too many “ideas”, and VCs neither possess nor value intuition.
sharpshoot, that they are living frugally is fairly obvious wiseguy. I need no welcome to startup life.
What I was wondering is how long the $5k per founder is meant to last. Also, frugally in CA is a different concept than frugally somewhere in MS, especially when you have a family and are not living with your mum.
Hey Motown, not everyone was so zealous as to go out and follow the american norm of 2.2 kids, a dog and a picket fence. Many of us actually have….gasp, a savings account along with investments. Nor were many of us stupid enough to move to the over-populated/-priced state of CA. Having a spouse that has chosen a more conservative lifestyle (read: 9-5) also helps :).
5% of the company for $15,000?! Sounds like desperation. There are other sources of debt and equity financing out there, and they are abundant.
Andy, It isn’t about the money, not at all. It’s pretty easy to get money. It’s about the opportunity, the connections, the mentoring, the camaraderie with the other teams and the ability for us to leave our full time jobs to bootstrap for 3 months.
well said Matt, can’t wait to see what comes of socialthing!
Matt’s attitude toward this says a lot. Doing it for all the right reasons.
5% of nothing is a pretty small stake…it is not about the money…it is about the connections.
On the other hand, I think these “teams” will be learning web/bubble 2.0 fundamentals instead of business fundamentals.
It seems to me that “web 2.0″ is about looking for (and planning for) the shortcut…just like the old days.
I agree - Motown is a chump;
- 5k is meant for company startup, then 5k for each founder .. can easily last 3 months that you spend in Denver -
- Your not supposed to go home / with a lot of cash in your pocket.
- Your supposed to at the end of 3 months / have something to show for a bigger round of VC funding or atleast a launch - of a privately held company.
Dave G - I’m wondering why there is a natural assumption that we’re going to be teaching “web/bubble 2.0 fundamentals instead of business fundamentals?” The founders and mentors around TechStars have built a great number of “real” companies. Perception is reality, so I’m genuinely curious.
right on, matt. I appreciate people being worried about our survival, but that is really our choice.
can’t wait to kick some tail this summer.
“going to be doing something in the social networking space”
that about says it all. don’t bother creating a unique tool with a novel application, just implement an abstract concept. too bad I can’t short this bubble.
$5,000 for 10% IS OUTRAGEOUS for certain situations. IS. CERTAIN Notice that? Is. Certain.
A typical situation for starting a company is whereby one or more person brings to the table the following assets: money, knowledge, or human capital.
For $5,000 you can’t “buy” more knowledge or human capital and you can’t “buy” more money. For $5,000 you have living expenses. The people qualifying for these events will bring to the table the knowledge and human capital but levy this model for a traditional business or try to apply it to just some other internet business and it doesn’t work.
It’s POSSIBLE that Youtube could have been cranked out for 5,000 bucks, but I could get hit by a bus tomorrow. The variables (low cash amount, decent idea, execution) are not inclusive. Most of YCombinator’s offerings are lacklust side projects at best, but for $5,000 THAT’S OKAY.
Low expectations = big learning experience as long as we don’t make a mountain out of a mole hill.
That is disconnect in the perspective. This was an Alaskan PSA.
Most of you folks are too ignorant to even comprehend what’s written in the post!
1. It isn’t $5000–more like three or four times that.
2. These are mostly people who are either in very very early stage where even their best rich ass friend won’t be willing to do angel for them, let alone another VC.
3. If you offered a mil to most of these guys for more equity, they would probably decline it.
4. We aren’t even talking about all the connections and advice you get. Which also happens to be the best part of the program if you hear from past groups.
5. You have a right to a view–but hey, at least take a moment to read what it’s all about before screaming “OUTRAGEOUS!”
-Zaid
@ David Cohen
It just seems to me that the “Advance to Go, Collect a Billion Dollars” mentality is back.
Seems like a lot of people may be missing the point on this thread.
First off, the teams APPLY for the spot, knowing full well what they are giving up in equity. It’s not like they are being blind-sided. If they didn’t think it was a good deal, they would never apply.
Second, the $5k is totally irrelevant. Obviously you can’t live off of that money for very long. It’s a token sum that just makes life a tiny bit easier. The plan B for many startups is to starve on thier own credit card balances.
Last, the people that run incubators like these are just people that love to do startups and want to make some wonderful things happen. If they were completely motivated by maximizing their gains, they would be spending their time and money elsewhere.
It’s a little bit of money to get a few smart companies off the starting block and better connected. Nothing wrong with that!
This post http://vcratings.thedealblogs......e_envy.php
is a complaint about Google taking all the talent out of the world, and now YC and TechStars
It looks like it is an interesting time for ambitious technologists.
“Last, the people that run incubators like these are just people that love to do startups and want to make some wonderful things happen. If they were completely motivated by maximizing their gains, they would be spending their time and money elsewhere.”
last i heard, y combinator was a for profit.
zzzzZZZzzzZZZ
I tell you what …. I would’ve love to be chosen if I am in a position to take advantage of something like that.
Granted, 5% is no chump change but like many have said, it’s more about the learning, connections, and being mentored by people in positions of assistance. A $15,000 loan from a bank will not get you all of that.
Awesome news for the Socialthing crew. Matt’s going to be doing some great stuff. Pity he has to leave St. Louis though, we’ll miss him.
“Andy, It isn’t about the money, not at all. It’s pretty easy to get money. It’s about the opportunity, the connections, the mentoring, the camaraderie with the other teams and the ability for us to leave our full time jobs to bootstrap for 3 months.”
Andy: how is giving up 2-10% of your company to an angel for $5,000 base plus $5,000 per founder bootstrapping? The typical definition of a boostrapped business is a business that is started without external investors. See:
http://en.wikipedia.org/wiki/B.....usiness%29
As I’ve said before, from an investor standpoint, companies whose founders show an ability to make the most of limited resources are very appealing. If a guy comes to you and says that he was able to build his product without taking on any outside investment by using credit cards, home equity loans, creative deals with third parties, etc., that shows some real business savvy and determination. It also shows that he has enough confidence in what he’s doing to put his own arse on the line before asking me to put my money on the line. It doesn’t guarantee success, but if somebody is eager to give me 2-10% of their business for a low five-figure amount, I’m probably a bit underwhelmed. A huge part of success in business is being able to deal with challenges. If a founder is successfully able to deal with the challenge of not initially having easy access to the money he needs to get his product built or business off the ground, he’s proven some ability to deal with a major challenge, and that puts him above founders that can’t scrap together $10-$20K themselves.
I will not argue that the connections, mentoring, camaraderie, etc. you might find with a TechStars or YCombinator have no value whatsoever, but I frankly I think there’s too much back patting and ego-stroking going on with startups these days. In my opinion, when done to the excess we’re seeing today, it’s not healthy and distracts from the real purpose of a legitimate startup: creating a product that a viable business can be built around. Mentoring and camaraderie are fine up to a point, but you don’t build a company for social purposes and it seems like there’s a “Summer of Love” mentality to a lot of the Web 2.0 stuff that’s going on today.
“That is VC’s, angels, people that have made it already… These things cannot be priced. Also on top of that we all know how clique VC’s are and as such when VC’s and angels like those running the start-up schools give your startup some lovin’ then they’re all the more interested in you.”
The question is whether you really want or need loving from VCs. I think the biggest mistake young entrepreneurs make is thinking that VCs will lead them to the promised land. Many young entrepreneurs look at investors who have money and individiuals who have achieved success and are easily hypnotized. These people have one goal when they invest in your company: to make money and maximize their returns. Don’t forget that. If you are only capable of seeing the potential benefits of that and can’t see the potential problems it creates, you shouldn’t take their money.
In addition to capital, investors do supply you with advice, connections, etc., but at the end of the day they cannot guarantee the success of your business. If your business model isn’t solid, you’re not able to execute, etc., all their money, connections and past success are very unlikely to do you any good. As Guy Kawasaki says, everything he touches does NOT turn to gold - “If it’s gold, Guy will touch it.”
Additionally, when it comes to connections, don’t expect that your investors are just going to shower you with introductions to their most trusted contacts. Just because Sequoia invested in your company doesn’t mean that you can get a lunch meeting with Sergey Brin and Larry Page. I think many founders overestimate the extent to which investors can or will provide them with connections, and many investors oversell their “network” and how it will benefit portfolio companies. The bigger truth is that you can develop a network of key contacts on your own. Build a product that really takes off and you’ll find that important people will take your calls and may even call you.
“Your supposed to at the end of 3 months / have something to show for a bigger round of VC funding”
Pallet Jack: therein lies the problem. I think young founders are often seduced by the lure of VC and believe that it’s a requirement for building a successful technology company. Therefore getting locked into subsequent rounds of institutional funding when you participate in a program like TechStars or YCombinator doesn’t seem like a big deal. But it’s probably the biggest decision these founders will make when it comes to their startups. How you decide to finance your company dictates how the company is built, the timeframes for execution, the control founders have, the available exits, etc. Going the equity financing route is almost a requirement for some types of technology businesses, and it’s often a good route, but I think far too many founders think it’s the only route. They don’t realize that it can lead to failure just as often as it can lead to success.
i’ll bet you mike predicted WEB 2.0 will crash if people keep using VC all the time.
there is such thing is WEB 3.0.
Own 100% stock… Like microsoft did many years ago.
WWE Vince mchanon owns 100% stock
It’ll be interesting to see how these ventures turn out. I’m not pessimist, but a healthy dose of realism every now and then does wonders. That being said, Drama 2.0 made some good points above. I hope that the founders of the TechStars companies think through these issues. Sales, risk management, financing, control/investors, product development, personal networking… these are all important components of entrepreneurship. The best idea in the world doesn’t mean anything until someone hands you a check. The value of your venture is $0 until you harvest value–through cash flows, an acquisition, a managerial transition, an IPO… something.
More on my opinion (and a more detailed analysis) on Dead 3.0 http://foroobar.wordpress.com/.....l-it-work/
Business dont start this way. Period.
i would like to see a reality show about these startup camps. very interesting. more interesting than maui fever at least.