Techstars Cofounder David Cohen Explains the Equity-Back Guarantee [Q&A]

September 16, 2014

12:00 pm

At the beginning of September, Techstars announced something revolutionary for the world of startup accelerators: an equity-back guarantee starting in 2015. Next year, companies who go through Techstars will have three days after the end of the three-month program to lower or eliminate the amount of equity Techstars took.

Right now, Techstars offers $18,000 in funding in exchange for 6% equity, as well as a $100,000 convertible note. The program has expanded to 13 locations and boasts a network of over 3,000 people.

We firmly believe in the value of the Techstars accelerator program and in the long-term value of our network. This makes it easy to take this step to ‘put our equity where our mouth is,’” Cohen wrote in the announcement.

 

“Some of the founders we’ve funded over the years have been skeptical of the value of Techstars on the front end. Most of those ended up talking with the alumni of Techstars and ultimately got comfortable and made the leap of faith.”

So it’s clear that this equity-back guarantee serves the same purpose as a money-back guarantee: to convince the hesitant to purchase. But who is skeptical of Techstars? Don’t they have enough applicants already? And will other accelerators follow suit? We talked to Cohen about those questions and more below.

Tech Cocktail: Are you looking to get more applicants? Doesn’t Techstars have plenty already?

David Cohen: It’s about quality over quantity. We just don’t want the best companies not applying because they’re not sure an accelerator program will be worth it. If a company thinks they can benefit from our massive interconnected network of mentors, entrepreneurs, investors, and corporations, we want them to consider Techstars. This network helps them with capital, guidance, M&A opportunities, business development and customer acquisition, and talent recruitment.

Tech Cocktail: Do you think other accelerators will follow suit? Why or why not?

David Cohen: I don’t know. Look, offering a guarantee of value is a completely new and shocking concept to the entire venture capital industry, not just for accelerators. I haven’t seen anyone else say, “We’ll add the value we claim to add and if we don’t, we’ll risk the equity you gave us.” I would expect it’s making others think about whether or not they’re as “entrepreneur friendly” as they like to talk about. But we’re not doing this to put pressure on anyone else. We’re doing it to better serve the founders we work with. That’s all we care about.

Tech Cocktail: What is the kind of startup or entrepreneur who might be skeptical of Techstars?

David Cohen: Could be anyone. The idea is simply to remove any upfront hesitation that companies may have with regards to joining an accelerator. Having funded over 400 companies and having a very high satisfaction rate (NPS score of 77, well into the excellent range), we don’t want the equity ask to be a deciding factor or inhibitor for anyone prior to joining the program. Over the years we’ve noticed that almost everyone who has this hesitation before coming to Techstars doesn’t have it afterwards. They realize later that Techstars is for life and is not just about the three-month accelerator program but the value they get from leveraging a network of over 3,000 entrepreneurs, mentors, investors, and corporations. The equity-back guarantee puts our equity where our mouth is, and removes the risk from their decision.

Tech Cocktail: Is this a way to differentiate Techstars from other accelerators?

David Cohen: It’s one of the core values of Techstars. It’s a philosophy and a way of life. Give first with no expectation of return. Deliver quality, and you’ll benefit later. All of life doesn’t need to be transactional.  It’s the Techstars tradition of #givefirst.

Tech Cocktail: What is “the Techstars tradition of #givefirst”?

David Cohen: Techstars is differentiated by its results – we’ve had 49 exits, and have a very high funding and success rate overall. We’ve generated billions in portfolio value. See the stats on our portfolio. The equity-back guarantee is in response to feedback we were hearing from the market – from founders. We’re listening and improving what we offer for those we serve.

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Kira M. Newman is a Tech Cocktail writer interested in the harsh reality of entrepreneurship, work-life balance, and psychology. She is the founder of The Year of Happy and has been traveling around the world interviewing entrepreneurs in Asia, Europe, and North America since 2011. Follow her @kiramnewman or contact kira@tech.co.

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