Optimizing Startup Accelerator Equity Models

The Challenge: High Equity and Team Misalignment

DATA

1. Not much information about our competitors and no agreement with my team.

Context: The Ufounders Mission

• Ufounders is a kind of accelerator that has the goal to democratize entrepreneurship. The issue was that our business model involved taking 10% of the equity from each startup that enters our portfolio. This was too much equity (imagine you have a $1M company). We were losing a lot of startups with really great founders because of this. I was really upset about the model we were using; it was not complementary to the purpose of the company itself.
• I think in almost all companies, there is something you don't like. In my mind, I was thinking: "We are a team; we all need to go in the same direction." However, I had no fundamental arguments to convince the rest of the team either.

Strategic Actions Taken

• I went to the CEO's office (he is very approachable) to see if he perhaps had a benchmark of how competitors work. He didn't have a benchmark itself, but more or less an idea of how competitors work—though not exactly.
• So, I decided to search the internet for competitor business models; few of them had this information available on their sites.
• To get more information, I pretended to be a startup founder applying for their accelerator. Thanks to this, I was able to gain much more insight.
• I obtained information such as: if they had free offices for entrepreneurs (and if not, how many), if they had free advisors, how much money they were investing, and how much equity they were taking.

Results: A More Flexible Business Model

• We were clearly not the best option. Thanks to this study and benchmark, we are now a little more flexible. We still stay at 10% equity, but occasionally we decrease this number. This is really important now as we work for success. If we don't get investors to invest in your business, we will refund you 10% of the total amount.

Key Messages and Future Vision

A bit of my problem is that I wanted to be the solution to the market. Big pains such as equity and several costs—you also need to pay the rent, you need to pay salaries—are significant. Maybe in the future, when the company is more established, we can address these further.