The Incubator Decision
Although it’s only been a month since we stepped foot in the Science Center to begin DreamIT 08’, the benefits and drawbacks to the incubator program are fairly pronounced. Every incubator is different, promising a unique set of tools and resources operating within an innovative organizational structure.
We were drawn to DreamIT initially because our company was right in their sweet spot; we were a company with an idea, a half-built product, and a business plan while running our home offices out of the Villanova Law library. Post family and friends funding and pre-seed/angel round, TapInko was struggling to find its identity.
DreamIT called us in for an interview, and we became one of 10 companies out of approximately 250 to get the invite into the program. First, I will discuss the pros and cons of the decision to accept or deny an offer from an incubator, and then I will conclude with some brief remarks about how DreamIT is rolling along at the one month mark.
1. You Don’t Have Enough Time to Make an Educated Decision about the Offer
If you get an interview with an incubator, make sure you have thought about your response to various offers. I’ve heard horror stories about how Y Combinator gives their offers by phone, forcing startup company founders to scramble for one hour to make a decision. DreamIT is a little more reasonable, allowing their offerees a couple days to mull the offer letter. Did TapInko waver? Yes. Why? We’d give up 6% of our company to the DreamIT guys. Would it be worth it? We didn’t know. This was DreamIT’s first year in operation. We would be taking as much of a risk on DreamIT as they were taking on us.
2. They want 6% of Your Company
Is 6% a reasonable amount of money to give to an incubator for a one-time summer experience? At first glance, 6% seems like a lot for three months of resources and exposure. they gave TapInko a $333,333 valuation. However, the incubator promises at least $5k in legal assistance, $5k in accounting assistance, office space at the University City Science Center, synergies with the other DreamIT companies, and the assistance of gurus, strategists, and weekly speakers. Not to mention the pizza, calzones, and soda (mmm brainfood). These value-ads are only as valuable as your ability to utilize them. Did we have 6% to give to DreamIT? Yes. We jumped in.
3. The Offer Letter is Difficult for Law Students to Swallow
The scariest part of the DreamIT offer was the two page offer letter. An hour after the offer letter was emailed to our CEO, we sent the DreamIT guys a long letter with questions that the offer letter didn’t address: (1) Class of units the DreamIT shares would be; (2) terminations provisions; (3) voting rights; etc. We just went over a sample term sheet in e-business class, and it was difficult to accept such a vague offer. They promised “legal and accounting services at no cost to you.” They should have mentioned that the legal services were at no cost up until $5,000 of in-kind services. Pepper Hamilton, the law firm selected for TapInko, has been absolutely amazing guiding TapInko around the legal pitfalls of small startups. DreamIT told us that the reason for having a concise term sheet is so the developer-heavy teams wouldn’t become frustrated with the complexity of the term sheet and walk away. Understandable.
4. Access to Funding Sources
It is inherently difficult for young entrepreneurs to get in the door of angel groups and venture funds, so the rolodex of connections provided to TapInko will be essential to our success in getting funded. The Funding Day/Demo Day at the end of the summer was the clincher for our team. Instant access to a forum for pitching to 60-80 investment groups may provide further validation of our product.
5. Speaking of Validation…
As DreamIT grows its community reach, the status of being a DreamIT company will provide instant validation for our startup. It is often difficult for small companies to get a great reputation and industry penetration, and TapInko has already seen the benefits of this affiliation. Many potential clients have congratulated us when they saw, through the TapInko blog, that we have been accepted into DreamIT. It is a real honor to be selected as a top 4% startup on the east coast.
…At the end of the day, are we glad we decided to accept DreamIT? Yes, absolutely. In the span of one month in the incubator, working the day-to-day grind together in our pods, we made strides that would normally take entire semesters.
In the land of tech startups, there is no time to waste time. Someone is likely out there in the interwebs doing exactly what you’re doing. The only way to succeed is to release your product quickly, be an active thinker, secure your clients, conquer your niche, get funding, and expand. Let’s roll.
We were drawn to DreamIT initially because our company was right in their sweet spot; we were a company with an idea, a half-built product, and a business plan while running our home offices out of the Villanova Law library. Post family and friends funding and pre-seed/angel round, TapInko was struggling to find its identity.
DreamIT called us in for an interview, and we became one of 10 companies out of approximately 250 to get the invite into the program. First, I will discuss the pros and cons of the decision to accept or deny an offer from an incubator, and then I will conclude with some brief remarks about how DreamIT is rolling along at the one month mark.
1. You Don’t Have Enough Time to Make an Educated Decision about the Offer
If you get an interview with an incubator, make sure you have thought about your response to various offers. I’ve heard horror stories about how Y Combinator gives their offers by phone, forcing startup company founders to scramble for one hour to make a decision. DreamIT is a little more reasonable, allowing their offerees a couple days to mull the offer letter. Did TapInko waver? Yes. Why? We’d give up 6% of our company to the DreamIT guys. Would it be worth it? We didn’t know. This was DreamIT’s first year in operation. We would be taking as much of a risk on DreamIT as they were taking on us.
2. They want 6% of Your Company
Is 6% a reasonable amount of money to give to an incubator for a one-time summer experience? At first glance, 6% seems like a lot for three months of resources and exposure. they gave TapInko a $333,333 valuation. However, the incubator promises at least $5k in legal assistance, $5k in accounting assistance, office space at the University City Science Center, synergies with the other DreamIT companies, and the assistance of gurus, strategists, and weekly speakers. Not to mention the pizza, calzones, and soda (mmm brainfood). These value-ads are only as valuable as your ability to utilize them. Did we have 6% to give to DreamIT? Yes. We jumped in.
3. The Offer Letter is Difficult for Law Students to Swallow
The scariest part of the DreamIT offer was the two page offer letter. An hour after the offer letter was emailed to our CEO, we sent the DreamIT guys a long letter with questions that the offer letter didn’t address: (1) Class of units the DreamIT shares would be; (2) terminations provisions; (3) voting rights; etc. We just went over a sample term sheet in e-business class, and it was difficult to accept such a vague offer. They promised “legal and accounting services at no cost to you.” They should have mentioned that the legal services were at no cost up until $5,000 of in-kind services. Pepper Hamilton, the law firm selected for TapInko, has been absolutely amazing guiding TapInko around the legal pitfalls of small startups. DreamIT told us that the reason for having a concise term sheet is so the developer-heavy teams wouldn’t become frustrated with the complexity of the term sheet and walk away. Understandable.
4. Access to Funding Sources
It is inherently difficult for young entrepreneurs to get in the door of angel groups and venture funds, so the rolodex of connections provided to TapInko will be essential to our success in getting funded. The Funding Day/Demo Day at the end of the summer was the clincher for our team. Instant access to a forum for pitching to 60-80 investment groups may provide further validation of our product.
5. Speaking of Validation…
As DreamIT grows its community reach, the status of being a DreamIT company will provide instant validation for our startup. It is often difficult for small companies to get a great reputation and industry penetration, and TapInko has already seen the benefits of this affiliation. Many potential clients have congratulated us when they saw, through the TapInko blog, that we have been accepted into DreamIT. It is a real honor to be selected as a top 4% startup on the east coast.
…At the end of the day, are we glad we decided to accept DreamIT? Yes, absolutely. In the span of one month in the incubator, working the day-to-day grind together in our pods, we made strides that would normally take entire semesters.
In the land of tech startups, there is no time to waste time. Someone is likely out there in the interwebs doing exactly what you’re doing. The only way to succeed is to release your product quickly, be an active thinker, secure your clients, conquer your niche, get funding, and expand. Let’s roll.
posted by Slim at
11:23 AM
3 Comments:
I would love to hear one of these Y Combinator horror stories! From what I've read, companies that are interviewing know exactly how much Y Combinator will invest and all of the other terms of the deal except the equity stake. If you can't make your mind up in an hour given that you already know all but one piece of the information, you're going to have a tough time running a business regardless of where you get funding!
I can't say I agree... Giving up ANY equity is not something that should be done expeditiously.
That's the point; you're not making a decision expeditiously. You have all but one of the terms at least 3 weeks in advance so you have plenty of time to determine at which equity point you will accept versus reject.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home