Hi, just got an offer from accelator for our idea/project accelaration and Im quite dumb about how things work in financial side of things. Will we owe them 20k pre-seed capital if in case something bad happens and we fail? How its usually handled? Thanks! *its 15% equity deal I know it depends HUGELY on terms, but how does it generally happen among accelerators?
I haven't seen a deal structured this way. Usually they get 6-10% equity I exchange for some small amount of money ( ~ $25k ) and tons of mentorship. 15% for $20k seems high ( you are valuing your company at $133k ) but there might be more to it.
Accelerators are great specially for unknown founders. It gives them a fair chance of connecting to the people that well connected founders have access to and really get a shot at proving themselves.
The accelerator should have access to great mentors, investors and previous successful founders. It should also be vested in the success of the company ( thus the equity ).
If you sell them equity for the $20k, you don't owe any money if you fail. They get equity ( in very favorable terms ). If your equity turns out to be worth nothing ( I.e your company closes ) it's a loss for them and you but you should owe any money.
Best of luck!
Hi, well this is extremely uncommon, or at least very uncommon in the realm of legitimate investors of any kind. The whole point of venture investing, which includes accelerators and incubators, is that it's high risk, and that it's totally unsecured investment. That's why we get a lot of equity for our money.
Now, there may be exceptions depending on the deal terms and structure, but it's something you would only do if there was a really big incentive to do so, like super low equity. But if I read this correctly, and you get 20K for 15% of the company, that's not nearly sweet enough to also be on the hook for returning the capital if you fail, which sadly is likely.
If you want to talk and go through the term sheet/docs, I'd be happy to setup a call to discuss more.
You *shouldn't* owe them an financial obligation if you fail, since the $20k is almost always invested by accelerator as equity and it would be highly unusual if an accelerator were providing debt. 15% equity is on the high side of today's accelerators so I would be sure that this is the best deal you feel you can get before accepting.
If the accelerator isn't already well-known with many classes of graduates, I would suggest doing your due diligence and talking with companies who have already graduated from this program about their experience.
15% is only reasonable if they have a good reputation, have specific value-add you think they'll bring to your company and you and your team are inexperienced and unproven.
Happy to talk with you in a quick call if you need further clarity.