“Your company may voluntarily contribute an additional 1% of the common stock of your company to be placed in a pool that will be shared equally among participating DreamIt’08 companies. You are not required to participate in this pool.”
DreamIt Ventures Offer Letter
Spring 2008
For the past several weeks, my company has been posed with the question of whether or not to include 1% of TapInko's equity into the above-described DreamIt 1% Pool. From our understanding, this unique opportunity is a perk that differentiates DreamIt from other incubators. There are two sides to this debate; here is what we are thinking:
Pros
‘Loose fit insurance policy’ – This is the most obvious reason for our inclusion; if we fail we would not necessarily be a complete failure as long as at least one other team included in the pool makes it.
Series B Stock – The stock contributed to the pool is passive and would not come with special privileges. Without any voting rights, the other teams would be simply passive percentage stock holders.
The Cheer Factor – By each contributing a percentage point, we would increase each other’s vested interest in seeing success.
The "Mindshare Effect" - If every company had a stake in every other company, it would encourage collaboration and mindshare amongst the companies in the Science Center. If my idea for Sleep.FM, for example, might get them another client or change their interface for the better, I have a stronger impulsion to let Ryan know.
Cons
Easier Said – Being in law school has led me to realize about the importance of de-risking. The situations that can exist if each team contributes to a common pool can become real sticky real fast. We would want to make sure that if one team has an issue, the intertwined nature won’t cause an issue for everyone.
Investors - Venture Capitalist might see this as a More Owner = More Problems situation.
Amount - 1% might not seem like a lot but… what is 1% of Google? Aol? Yahoo? What is the real value of 1% of our company? What else could that 1% be used for?
Total Return Vagarity - Let's say that, for example, Vuzit makes $10 million in the sale fo their business. 1% of $10 million is $100,000. This $100,000 goes into the 1% pool. Divide the $100,000 over the hypothetical 10 teams that entered themselves in the pool. $10,000 would go to each team. Pursuant to the email from Mike Levinson, each founder of the companies would get an equal share of their company's participation. Therefore, each founder would get $3,333 from Vuzit's $10,000,000 sale...Before taxes.
Our Final Decision:
After much debate, the TapInko team has decided to contribute 1% to the common equity pool. If something is in your venture's best interest, think about it, analyze it, and go for it if it sounds good. We faced a similar situation when the opportunity to join DreamIt was for the taking and we had to ‘give to get.’ In this case, this opportunity is just to cool for us to pass on. We have learned so much from DreamIt and we want to get as much from this opportunity as will be allowed.
Besides, we kinda like what a lot of the other teams are doing!
What would you do?
Labels: DreamIt Incubator, DreamIt Ventures, John Valentine, Nicolas Warren, Peter Groverman, TapInko, Venture Capital Incubator
