Isn't 500 Startups asking a lot for $100k?
7% seems bit high.
5 Answers
Views • Upvoted by Dave McClure, I run http://500startups.com, a seed fund and incubator / accelerator program. Previously I've work…
TL;DR - No, they aren't. It's a f**king bargain.
500startups previously provided $50k for 5%, so the current offering is actually a step up, valuing companies at a little over $1.4M compared to $1M before. It should also be noted that 500s charges $25k out of that $100k as program fee to fund their operations, so the net amount received now is $75k (previously $35k).
Aside from the valuation being fair for most pre-seed companies, 500startups provides much more than money. I will make a very (not) bold statement that no ones joins 500startups, or any of the other top accelerators, just for the monetary investment.
I can't speak for other accelerators, but specifically at 500startups the value they provide includes:
I have no doubt that we would not have made half the progress we did since joining the accelerator program without 500startups. Their offer is not only fair - if you use their resources properly, it will seem like a huge bargain in the long run.
Can you succeed without joining 500startups or other top accelerators? of course - many companies have and will continue to do so. But they significantly raise your chances of success for a relatively low cost. There are very few, if any, investors that can add as much value as 500startups.
500startups previously provided $50k for 5%, so the current offering is actually a step up, valuing companies at a little over $1.4M compared to $1M before. It should also be noted that 500s charges $25k out of that $100k as program fee to fund their operations, so the net amount received now is $75k (previously $35k).
Aside from the valuation being fair for most pre-seed companies, 500startups provides much more than money. I will make a very (not) bold statement that no ones joins 500startups, or any of the other top accelerators, just for the monetary investment.
I can't speak for other accelerators, but specifically at 500startups the value they provide includes:
- Learn how to make your company better - A 3+ months program covering a range of topics important to startups, including marketing and user acquisition, PR, financials, operations, hiring, fund raising - all from extremely knowledgeable and well regarded individuals, as well as frequent visits from founders of successful companies, sharing their war stories and providing feedback and advice.
- Immediate credibility, which is invaluable for fund-raising and business development. Investors and companies that previously didn't care about you will now be willing to talk to you.
- Community and camaraderie - unlike some of the other accelerators, 500startups provide their own offices where all the batch companies work from during the duration of the batch. Your batch mates become your friends, advisers, confidants and backbone. If you served, it's somewhat comparable to the kind of relationships formed in the army - only here the battle is for the survival of your company.
- The money helps too, to get things started as you begin to raise your actual seed round. Going from bootstrapping / being broke to having $75k in the bank makes a big difference. As very often 500startups are the first investor to put money in a company, they deserve a big discount. "The first person to say “yes” is your real investor"
- And the biggest value is actually none of the above - it's being a part of the 500startup network of mentors, investors and especially founders. Having a strong network is very helpful for successful fund raising, business development and recruiting. I recently wrote in depth on why a network is important for startups - you should read it if you're not convinced. I would say their deal is worth it just for this aspect, which is often underrated. 500startups call their network a family, and you definitely feel it once you're on the inside.
I have no doubt that we would not have made half the progress we did since joining the accelerator program without 500startups. Their offer is not only fair - if you use their resources properly, it will seem like a huge bargain in the long run.
Can you succeed without joining 500startups or other top accelerators? of course - many companies have and will continue to do so. But they significantly raise your chances of success for a relatively low cost. There are very few, if any, investors that can add as much value as 500startups.
we have fairly standard terms for our accelerator program, and usually take between 5-7% for a $100K investment, less a $25K program tuition (so net $75K). YC takes ~6% in exchange for $120K. I believe TechStars & AngelPad have similar terms.
most other accelerator programs ask for a similar amount of equity, altho some offer more or less cash (mostly less), and a few take more equity.
anyway, nobody seems to be arguing much, and more & more companies are eager to accept our terms in exchange for access to our network and benefits.
of course if you don't feel the terms are worthwhile, you don't have to accept them either... your mileage may vary ;)
dmc
most other accelerator programs ask for a similar amount of equity, altho some offer more or less cash (mostly less), and a few take more equity.
anyway, nobody seems to be arguing much, and more & more companies are eager to accept our terms in exchange for access to our network and benefits.
of course if you don't feel the terms are worthwhile, you don't have to accept them either... your mileage may vary ;)
dmc
What 500 is offering is very fair for very early stage startups. Dave and his team run an awesome program. The top accelerators these days are pretty close to these $ and equity %'s and the top accelerators offer tremendous value for companies lucky enough to get in. Just stick with a top 10 accelerator. There are thousands of accelerators around the world these days and I find that most add little material value.
The market is also starting to see venture accelerators experimenting with new models. In 2015 Dreamit experimented with a new "zero/zero" program where we invest $0, take 0% equity, and ask for a discounted investment right in the company's next qualified financing round. It's great for later stage startups that are post seed / pre series A where they don't need the "stipend" cash but instead need the network, customer connections, partners, mentoring, acceleration, etc. Dreamit will continue with both stipend-based and this new zero/zero funding model in 2016 with special vertical focuses in digital health and ed tech.
The market is standardizing at 5-7% of equity for about $100-$150k in pre-seed financing for equity-based accelerators. The earlier models of 5-10% for $18-$20K sucked. This newer model isn't that bad.
Personally, I prefer working with a different philosophy: Bootstrap First, Raise Money Later. That's what we practice in 1M/1M. In my recently published book, Billion Dollar Unicorns: Entrepreneur Journeys 1, Sramana Mitra - Amazon.com, this theme is one of the recurring ones that has yielded success after success.
Personally, I prefer working with a different philosophy: Bootstrap First, Raise Money Later. That's what we practice in 1M/1M. In my recently published book, Billion Dollar Unicorns: Entrepreneur Journeys 1, Sramana Mitra - Amazon.com, this theme is one of the recurring ones that has yielded success after success.
I can't necessarily confirm this is what 500 Startups offers (Just don't know), nor do I think negotiation details with a naming a specific investor should be public domain.
That aside - Are you under the impression, at a Seed/Pre-Seed stage is valuated much higher than this, by all means - pass on the offer.
Early stage investments undertake a massive risk, when compared with other stages of VC. This comes at a premium.
And honestly? The one presented is not all that bad at all.
Depends on your phase, and a reasonable valuation for what you have at hand.
That aside - Are you under the impression, at a Seed/Pre-Seed stage is valuated much higher than this, by all means - pass on the offer.
Early stage investments undertake a massive risk, when compared with other stages of VC. This comes at a premium.
And honestly? The one presented is not all that bad at all.
Depends on your phase, and a reasonable valuation for what you have at hand.
