Techstars to Offer “Equity Back Guarantee” to Skeptical Startups

9/4/14Follow @MichaelXBD

Techstars is making a new pitch to entrepreneurs—satisfaction guaranteed, or your equity back.

The startup accelerator, based in Boulder, CO, invests $18,000 in its startups in exchange for 6 percent of their equity. Techstars also offers each startup a $100,000 convertible note, which can increase its share of the company to 10 percent.

But beginning in 2015, startups that enter Techstars will have the option of lowering or eliminating Techstars’ share of the company, co-founder and CEO David Cohen said Thursday. The offer is open to any startup that goes through a Techstars or “powered by Techstars” accelerator.

Giving up that much of their company has become a sticking point for some of the entrepreneurs interested in Techstars, Cohen said.

“Over the last year or so, we noticed this trend, and it doesn’t happen a lot, but a company that’s already raised a million bucks, or already has a million bucks in revenue, they’re coming to us saying we’re interested in Techstars, but we can’t give you so much equity for it,” Cohen said.

“Why not eliminate that concern so that we have the chance to talk to everybody that’s interested in the network we’re providing and the resources we’re providing,” he said.

Techstars already has tested the idea by offering 10 or 12 startups the deal, Cohen said. He said none of the companies asked for Techstars to take a lower stake in their company after they completed the program.

The offer not only could seal the deal for some companies already interested in Techstars, but also could make entrepreneurs who don’t want to give up equity take another look at the accelerator.

“It probably gives us the chance to talk to some people we’re not talking to today,” Cohen said.

Techstars was founded in 2006 and held its first program the next summer in Boulder, CO. Since then, it has grown to 13 different locations, and 417 startups have gone through the program.

Initially, those startups were in their very early stages and tended to be led by relatively inexperienced entrepreneurs. Access to mentors and instruction about how to develop a product and business plan and how to pitch investors was the main drawing point. But over the past few years that has changed, especially for people who already have run companies.

Now there seems to be greater interest in gaining access to Techstars’ well-developed network of mentors, entrepreneurs, and investors around the world, Cohen said.

“The value proposition in people’s minds has changed a little bit, and I think more experienced entrepreneurs are seeing that. Even though they have the network, or have some network locally, they don’t have one globally, they don’t have one with Disney, they don’t have one with Barclay’s bank,” he said.

The number of startup accelerators has boomed in recent years, giving top startups a choice about which program to select. Other major names in the field are Y Combinator, the San Francisco-based program that has produced companies like Twitch, Dropbox, and Airbnb, and Dave McClure’s 500 Startups.

Over the years, accelerators have tweaked the details about how much equity they take, the price they pay for those shares, and the structure of convertible debt they offer. It’s all part of an ongoing competition to attract the top entrepreneurs to their programs.

Cohen said while the guarantee could be a competitive advantage, that wasn’t the primary reason for introducing it.

“We feel like we have a differentiated product. We’re one of the top brands out there. We’ve had 50 M&A transactions, there’s a billion dollars of capital pointed at Techstars companies,” Cohen said. “I feel like the product is pretty well established and the track record is pretty well established.”

Michael Davidson is the editor of Xconomy Boulder/Denver. He covers startups, venture capital, clean tech, energy, aerospace, telecoms, and whatever else happens above 5,280 feet. Contact him at mdavidson@xconomy.com. Follow @MichaelXBD

By posting a comment, you agree to our terms and conditions.

  • Saul_Lieberman

    So instead of varying Techstars’ equity formula to the stage of the company, Techstars is saying that our formula magically suits every company — and we are so confident that we’ll give you your money back if that’s not right.
    I suppose that more realistically, if 10% was not the right number, then the convertible loan would not happen and Techstars and the startup would renegotiate the 6%, rather than make it all or nothing.