Geek Accelerator VC to be careful: Light hit the money "do not act" Entrepreneur can apply for a withdrawal of equity

TechStars is one of the most outstanding accelerators in the world, and recently unveiled its "Equity withdrawal guarantee scheme". As the name suggests, if a incubating start-up feels that the accelerator does not provide them with enough value, they can apply for a withdrawal of equity.

David Cohen is one of the founders of TechStars, who always complains that startups are wise after the event, before taking part in the incubation to understand the value of TechStars. The purpose of this withdrawal is to allay the concerns of these start-ups and ensure that they do not have to worry too much about wasting time and equity in the incubation process.

If TechStars wants to be a highly competitive accelerator market, it is certainly a great smart move. Of course, it's not just great, it's a near-madness move.

Think of it: a living venture capitalist is hopelessly returning equity to startups that don't like his investment. It's almost a violation of every discipline in the venture capital industry, and I can even imagine how the other venture firms were startled by the news when they first saw it. It's like your friend Peter and Tom are getting married, and suddenly the pope appears and says he's going to help them with the wedding, it's big surprise. But you have to think twice before you can make a hasty decision.

If this is a one-off deal, we can simply deal with all the investors, whether they are eccentric or benevolent, and everything will be the same as today's entrepreneurial market. However, David Cohen is not the only one who is crazy to allow startups to withdraw their stakes.

Kent Goldman recently unveiled a new seed fund called upside, which he is planning to offer to some of the startups he invests in. Of course, the funds provided are actually profits from the investment and are usually used as performance rewards to be distributed to partners. Goldman wants to motivate his start-up companies in this way, because he believes that providing them with a little money will give them a culture of cooperation in their investment activities.

Of course not exactly! Upside is not the only new fund to give up profits from investment, such as Jonathan Teo and Justin Caldbeck, who recently launched Binary capital, to donate the profits to charities. This is reminiscent of a similar commitment made by Andreessen Horowitz a few years ago to donate half of a16z's income to charities. Binary disdain to point out that Andreessen Horowitz not purely want to do charity, he is actually focused on the task of cooperation, because they promised to donate money and performance rewards are inseparable.

Look, the innovation is good, venture capitalists should often get into the start-up companies. Such a share-withdrawal policy is also an excellent way to ensure investors ' obligations, because they cannot immediately play "missing" after signing a venture-capital deal. Giving startups a part of the fund is also a financial incentive for them to collaborate with each other and develop into small groups from portfolio investment portfolios. And no one will object to charitable donations, even if they are linked to corporate earnings.

But at the same time, these incentives are starting to worry me a bit about the health of the venture capital industry. If resources are particularly abundant, it is the only way to differentiate funds through these projects in highly competitive markets. Have venture capital companies really reached saturation point?

In short, aren't venture capital firms stuck in a bubble trap?

I still hold several different viewpoints. In most cases, the private assessment of startups is ahead of the open market, which is obvious because the news of the box and square IPOs has been abuzz before the initial public offering began. Practitioners should beware of bubble-wanton markets, and when VCs rush into hot money, start-up companies ' valuations will grow abnormally fast.

As the chairman of Y Combinator, Sam Altman, discussed earlier, although these new projects clearly show that the market has entered a bubble era, we have not found that VCs give up any equity share, they still love it. These investors will try to get around 20% of the deal, or even 33%, so those who focus on percentage of ownership will raise prices. If a start-up needs only 2 million dollars, but valuations are 50 million, most venture capitalists will demand more capital injections, with the aim of making their equity share more consistent with investment strategies.

This happens on many of the top accelerators, as they all require a median equity (usually 7%). The intense competition between the corporate accelerator and the non-profit accelerator, which does not require any shares, seems to be adding to the market's enormous price pressures.

If that implied any revelation, that would be good news for startups, because that's the way it is, the real victims are the venture capitalists. Start-ups, on the other hand, are the biggest beneficiaries. These incentive schemes are funded by managing capital, or venture capital profits, or both, and these new events do not affect the limited liability VC partners. Even equity withdrawal policies cannot change anything, because the worst-developed companies simply don't know how to grow, and they certainly don't see the value of their investments, so they are most likely to withdraw their stakes.

That is why competition in capital markets is generally beneficial. Venture capitalists have become accustomed to the poor performance of the first few years, and then receive tens of millions of dollars in management funds, which is Kauffman Foundation deeply embraced the entrepreneurial spirit. Facing the huge competition pressure in the capital market, being a venture capitalist is not as easy as it was at first. With these new entrepreneurial-friendly projects, new rules have emerged. Those poor-looking venture capitalists have a double whammy, not just for the equity not being withdrawn, but for the paychecks they have to struggle with every day.