Equity and Adult Supervision

Browsing through the Chicago GSB admitted students forum the other day, I came across several blogs and such that deal with tech in Chicago, various start-ups by current MBA candidates and the like. I'll post them once I have a more comprehensive list.

Until then, I'd like to mention a program/opportunity I stumbled upon in the process. TechStars is a group of entrepreneurs in Colorado who are starting what might be best described as a summer camp for entrepreneurs. They are going to choose ten founders (or groups of founders) to come spend the summer in Colorado, where they will provide incubation, mentorship, some classes, a bunch of networking opportunities, and in the end a small amount of seed money in exchange for equity: $5K per founder (up to $15K) for a non-voting 5% stake in your company.

In my opinion, $5-15K in exchange for 5% of your equity isn't a great trade off, but it's the other services they provide that really make it worth it. The incubation includes free legal help (including incorporation), shared office space, phone, internet, conference rooms, and other office-like amenities. This in addition to the speaker series they run, all the other entrepreneurs you'll meet, access to venture capitalists, angel investors, private equity types, etc, and all the fresh new ideas and perspectives you'll be introduced to (to which you'll be introduced? I hate dangling participles). Who knows if someone you meet there, an idea you generate, or whatever could be the catalyst that really gets your (my) business moving? It's certainly worth a look.

On another note, I think they have a great business model. They essentially get a slew of business plans to choose from, pick the ten best, lay out between $5-15K each, and get 5% equity in all of them. I obviously don't have access to their finances, but I can make some rough assumptions:

• 10 groups x 3 founders each x $5K per founder = $150,000
• Rental of office space, utilities, furniture, etc amortized each year = $250,000
• Speakers and mentors = probably free
• Legal help = free
• Servers = free
• Random Stuff I didn't think of = $100,000

So they lay out about $500K each year in exchange for a 5% share of what they consider to be excellent ideas/start-up companies. This is obviously a gross simplification, but if one of their sponsored enterprises gets acquired for $10M each year (or two for $5M, etc), they make their money back. I get the feeling they'll do quite well with this while helping a lot of people out. Win win, just like Referral Union (hopefully).

At any rate, I filled out their relatively painless 28 question application and sent it in. I'll keep you posted on our status....

In the meantime, check out their blog. It's full of interesting info, answers, and pretty pictures. Here's another take on the entrepreneurial boot camp.