As a young startup and with our product ready to launch, we’ve been evaluating opportunities and starting to apply for accelerators. But why do we want seed capital in exchange for 6-12% of our company? Good question. We ask ourselves the same thing over and over.
As you might know, as immigrant entrepreneurs, there’s several steps one has to consider before taking the plunge into the deep ocean of entrepreneurship. As immigrant ourselves, we simply can’t say “Hey, let’s start a business while we have a side job.” Early on when we got some recognition and won the MIT Technology Review award last summer, we had to plan first our ‘immigration plan’, the same way you would do a business plan, financial plan, and so forth. Many of these things have been challenges that we’ve learned along the way by ourselves.
Now that at least part of the immigration issue is taken care of (or we have a solid plan moving forward), we can better focus on our product, getting customers and building Stereotheque. In fact, you might see in the FAQ sections of almost every accelerator where they encourage startups to apply even if they’re from outside the US, and they will later focus on the visa topic or make you deal with it on your own. What most of these accelerators don’t know, is that taking care of immigration issues can be equally or even more stressful than building a company. Specially because it falls out of your hands.
More than often, this is not sustainable or viable. In our experience, it’s best to plan out what and how to do it. This will have direct impact in your startup, your corporate setup, and the decisions investors will make.
Usually, startups begin taking care of the administrative stuff (corp docs, taxes, accounting) after they have been accepted to an accelerator. Precisely those are some of the perks that come with some of the programs: free legal advice, pro-bono incorporation, CPA’s at your disposal, etc. However, we had to make the decision early on to incorporate before dealing with our visa situation. This way, Stereotheque would serve as our ’employer/sponsor’. We incorporated in September of last year, learning a lot along the way, dealing with corporate attorneys and immigration lawyers since everything was happening in parallel. Again, best advice is to learn as much as you can on your own and then reach out to your network and extended network for professionals dealing with this, don’t do it on your own.
It turns out that these early decisions work to our advantage in some ways. Investors like to see how a young startup is set up, its cap table, its corp documents, and so on. So going back to accelerator-mode, these were some of the boxes we could check off quickly.
The Gut Feeling
The more traction and progress you have, the better negotiation strategies you’ll have. We have focused on doing this specially after SXSW, gathering users’ feedback and ideas.
The application process for some of these accelerators can be tedious, yet you learn a lot from your own startup and practice on how you communicate the ideas and business. In the process, we’ve learnt also how to react when being rejected. There’s many stories of rejections of very renowned companies.
For instance, Dropbox’s founder Drew Houston got rejected twice by Y Combinator before entering with the Dropbox pitch. Ten years later, it’s a $10b dollar company.
Another example is Buffer, the social media scheduler and aggregator. Also being rejected by Y Combinator, they were later accepted into AngelPad in 2011. They shared their rejection letter (the boiler template for all), but increased their awareness as a startup. They even had paying customers, but sometimes it’s a matter of both traction and serendipity.
When to say no
At SXSW, we met with two investors who led a program in NY. We applied just a couple of days before heading to SXSW and they agreed to meet with us when in Austin. The conversation went really smooth, and considering Stereotheque gets way better responses when demoed, they really liked it. In fact, when you hear an investor talking about potential mentors, partners, and business ideas, you get they liked it.
This set us up in a good position to move forward. This got our foot in the door, however, the terms weren’t very attractive at plain sight. However, we compared it with other incubators including Jason Calacanis’ Launch incubator, who invest an intial $25,000 for 5% of preferred shares and have the potential of follow on funding. Namely, Jason Calacanis is basically the reason for which startups apply, not the money, not the perks. Calacanis and his network are worth it.
Taking this into account, we went into a second phone meeting with the investors who we met with at SXSW. We talked in depth about the questions they had about our MVP, our customers and potential partners, corp structure, etc.
There were a number of things we had to consider. Like moving to another city for the summer but knowing that the investment itself wouldn’t cover for the living expenses. We had a close look at the network and the city’s entrepreneurial fit with our target audience and our own network, but in the end we weren’t certain. We also did our research and talked to five founders who participated in the program before and got their feedback, suggestions and experience.
Then, we thought about a scenario. What if they were able to invest in us 4 times what they offered but for the same equity. Would be take it? That’s when our gut feeling helped out. Gut feeling supported by reasoning.
A week later, we got an official offer! Official terms, official everything. But, considering everything that went through our minds, we had to make the tough decision of declining.
In our own reasoning, we think it would have been a mistake, but as a professor once told me: “Embrace the process, not the event.” Beyond being accepted into the accelerator and achieving our goal of being offered a slot, we learned a lot in the process. Being aware of what we need in terms of investment (not only the money, but the network these investors will provide), as well as making sure we had to continue working toward the product to have a better negotiation strategy down the line. It also helped us determine how to pick our battles. Moreover, it gave us a really good energy boost because the value of what we could provide as a team, product, and idea was now tangible.
The present (we’re in an accelerator).
After a few weeks, we continued working on our product while also applying to other opportunities. Thanks to our deep connection to NYU, we applied to their Summer Launchpad Accelerator, a 10-week program which helps startups get fast to product-market fit, test assumptions and build sustainable business models.
And guess what! We got accepted. Why? Number of reasons.
They provide some funding yet equity-free. Best of all, it gives us the possibility of staying in NYC, growing our network of potential clients and customer base, as well as iterating fast on our product.
NYU’s resources are of great benefit mainly for two reasons: Access to talent and Mentorship.
As one of the top tier universities in the world, we have first-hand access to a pool of talent other companies would die for, and something we’ve learned fast, is that people make companies who and what they are. We’ll invest strongly in this area.
Many of NYU’s instructors and professors are highly recognized in technology and business. This network of experienced entrepreneurs, investors and hustlers can definitely help us grow and learn as much as possible. Now, the moment comes to accelerate.