
Ask HN: Accelerator wants up to 23% equity? - UnsureThrowaway
My startup has been approached by an accelerator with an unusual structure. The numbers I&#x27;m giving below aren&#x27;t exact, but represent the general structure of the accelerator.<p>1. They admit a small cohort in which they give all startups ~$70,000 for 7% of their company.<p>2. After a few months they give half of the startups an additional $50,000 for 4%.<p>3. After a few more months they give two of the startups an additional $50,000 for 2%.<p>4. Finally, they give one company ~$150,000 for 10%.<p>They then want you to raise a Round A after having given away ~23% of your company. They want you to raise with the VCs who fund this accelerator.<p>Is this a typical accelerator structure? My cofounder and I think that the initial $70,000 for 7% would be enough to bring our product to market, but our contact at the accelerator disagrees.<p>Does anyone have any experience with this kind of approach from an accelerator? Does this seem more or less preferable than what other accelerators offer?
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patio11
There are basically three accelerators which are widely regarded as value-
adding: YC, 500 Startups, and Techstars. The field is otherwise littered with
options which have yet to demonstrate value add and which offer terms which
are not considered very competitive relative to the standard terms in the
Valley.

I have no dog in this fight and don't know anything about the particulars of
your accelerator, but those terms strike me as somewhere between
"Uncompetitive with your best options" and "Run screaming."

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UnsureThrowaway
>I have no dog in this fight and don't know anything about the particulars of
your accelerator, but those terms strike me as somewhere between
"Uncompetitive with your best options" and "Run screaming."

That's the same impression we got. I was hoping to get an outside opinion.

Our contact told us (straight-faced) that no software company could be started
for $70,000 and I immediately thought of Bingo Card Creator.

Thanks for your input Patrick.

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patio11
BCC probably isn't the comparable you want if you're on the investment track.

There exist _many_ companies which can get enough proof points for a sizable
seed round or A round on $70k (chiefly spent on living expenses of founders as
they build product and attempt to get some evidence that it is useful and
salable). YC's history is chock full of examples.

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api
Whether this is a good deal depends on many specifics, all of which revolve
around how much risk the accelerator is taking.

Do you (and/or the team if there is one) have a track record? Prototype?
Product? Customers? Traction? Brand recognition?

If you went through that and answered "yes" to more than one of those things,
then 23% plus the other terms -- like investor lock-in -- seem onerous and
excessive. I see people raise seed rounds for more money on the strength of
team + idea with no product for less of a percentage than that.

So if you're not just at pure idea stage, run away screaming with arms
flailing in the air like you're running away from the monster in a cheesy 80s
horror flick.

Also, in business "unusual structure" always makes me skeptical, especially if
it's complicated or has a bunch of restrictions hanging all over it like this
one looks like it does. Outside the wonkier areas of finance, typically there
is no value in the actual structure of a deal itself -- all the value is in
what the deal is _about_. Complex deals usually mean someone feels screwed or
you spend a lot of time wrangling the deal which takes away from the time you
should be spending building something.

General sense: run.

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notahacker
Are the startups allowed to decline the follow-on funding? Without that, run a
mile

If I was a year or so into a startup, had already taken on ~$170k in funding
for ~15% of my startup, and shown enough traction to be judged the most
promising startup, then I very much doubt that I'd either see ~$150k as either
a fair valuation for another 10% of my startup or a useful amount of capital
to raise. (Also, with the approximate numbers you've provided, it effectively
represents a "down round" compared with the last tranche of funding which is
an odd way to _reward_ the best startup in the batch)

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alain94040
If steps 2-4 are optional, then you're fine. Step 1 is reasonable. Not great,
but ok. If $70K would make a difference for you, such as allowing you to bring
a product to market, then it's worth considering.

If all steps are required (can be forced by the incubator), then say no.

[source: I used to run an incubator that I believe provides value]

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nivertech
Is this for common or preferred stock?

