Techstars Equity Back Guarantee

Today Techstars announced an “equity back guarantee” for any company that goes through the Techstars program starting in 2015.

We’ve been talking about this for a while. One of Techstars’ matras is #givefirst which builds off my “give before you get” philosophy that I highlight in my book Startup Communities as a key part to building a great startup community.

As we talked about this, we realized that we could apply this directly to Techstars. We periodically encounter founders during the selection process who question the value of Techstars. It’s not that they don’t value it, it’s that they aren’t sure it’ll be worth it. Our solution historically has been to introduce them to Techstars alumni, which almost always results in the founders understanding the value of the program and jumping in with both feet.

One day we started bouncing around the cliche “let’s put our money where our mouth is” which quickly morphed into “let’s put our equity where our mouth is.” We are extremely confident in the value of Techstars and know that after someone goes through Techstars, they value it, often much higher than the cost of the program in the equity that they’ve given us to participate in it.

So we decided to launch an equity back guarantee. Our terms for going through Techstars are unchanged, but if at the end of the program you aren’t delighted, you can ask for some or all of your equity back. The only requirement is that you have to give us detailed feedback on what you didn’t find useful about Techstars.

While I wish my lawyers, accountants, and investment bankers offered a money back guarantee, I accept that isn’t changing anytime soon. However, I encourage all accelerators and entrepreneurial service providers to consider offering this. After all, our mission is to help entrepreneurs.

  • http://yoavlurie.com/ Yoav Lurie

    This is awesome and totally in line with the ethos of Techstars.

    If this were in place when we went through Techstars in 2011… it wouldn’t have mattered. The value is so much greater than the equity and we continue to get that value year after year.

    • http://www.feld.com bfeld

      And you keep on paying it forward for all you are doing for current (and future) Techstars companies.

    • David Cohen

      thanks yoav, a blog post on that topic right now would be well timed!

  • Sebastien Latapie

    A bold move and great evolution of the accelerator model. I wonder if other accelerators will follow your lead.

    • http://www.feld.com bfeld

      We will see…

  • http://blog.startupiceland.com Bala

    +1 I too wish my lawyers, accountants and especially investment bankers offered a money back guarantee. More importantly if only some of the bankers that I work with will give back the time that they suck from us.

    • http://www.feld.com bfeld

      Ah yes – that time thing… There is so much time I wish I could get back.

      • http://stansburylegal.com/ Mark Stansbury

        This debate is happening right now on the American Bar Association newsletter. The main concern raised is that–except perhaps in narrow business contexts–if you need to hire a lawyer, you will almost certainly be dissatisfied. This is particularly true in the consumer context where expectation setting is nearly impossible due to unrealistic TV portrayals of lawyers.

        Even in the business context, with savvy clients, it’s a tough call. There’s no cash or goods to return if the client is dissatisfied. And the law is such that it inevitably produces frustration in ambitious entrepreneurs. We try our best, but often dissatisfaction (in general) and lawyering go hand in hand.

        That said, it’s a conversation worth having, and I’m interested to see how it plays out for Techstars.

  • Santosh Rajan

    This is an awesome move. With accelerators mushrooming all over the place, this will be a good indicator for founders to weed out the good ones from the rest of them. All good accelerators should follow the lead.

    • http://www.feld.com bfeld

      Thx – we hope others who are confident in the value they are delivering copy us!

  • http://www.betterpointment.com/ Rich Weisberger

    Love the spirit of the move and while I havnt thought this completely through, I have a hunch that the 18k investment now becomes a taxable event?

    • http://www.feld.com bfeld

      We haven’t figure out the final structure but I think we likely can so it’s a non-issue.

    • David Cohen

      no – it doesn’t create such issues. we have a legal structure that works fine without that implication.

      • http://www.betterpointment.com/ Rich Weisberger

        Can you write a short blog on it?

        • David Cohen

          we will when we have it all finalized.

  • http://about.me/frank_miller Frank W. Miller

    Hmm, curious if your TAGFEE will allow you to publish those stats as they begin to accumulate… ;)

    • http://www.feld.com bfeld

      I don’t see why not.

    • Rick

      What’s a “TAGFEE”?

      • http://www.fullcontact.com/ Kipp Chambers

        It’s a set of core values that Moz (a Foundry company) put together to guide their company. It’s a great ethos – and close to universally-applicable in business: http://moz.com/rand/diving-deep-on-tagfee/

  • Rick

    When I try to come up with new start up ideas I always find myself thinking about take over the world innovations. Small, one feature, websites seem to escape me. But I’m trying to change that. Take texting for example. It’s been around for decades. Most of what we see that’s popular today has been around a long time. People like me who were deep in tech are already bored with most of the latest technical innovations before they become popular with the masses.
    .
    I was just thinking this morning about boiling down the web to a simple view of it all. What I came up with is this: Imagine if you were instructed to stand in the middle of a room. Then 300 people came into the room and stood all around you. Then they all began to vie for your attention. Pretty soon they would all be trying to talk louder than the rest. It would not be long before they would all be screaming at you! Of course you would not be able to understand what any of them are saying.
    .
    The one thing that kept standing out in my mind while thinking about the web today was a particular ad on a website. When I would visit the site the ad would immediately start blasting music at me while it flashed various images related to the ad topic. Well needless to say I didn’t get the message and I’ve stopped visiting the website because I’m not putting up with that.
    .
    When I read your post today, Brad, I realized that the equity back guarantee is a great offer. My question is will it be heard or will it be drowned out by the screams?! Just recently Mougayar had a post, The Future of Pulling Content is You, that talked about all the web content of today. Now that I’ve switched to objective based web usage I’ve realized that it’s difficult to find content that supports the visitor in reaching their objectives instead of just selling something.
    .
    Objective based web usage is a really great concept that puts the content provider in the position of a vendor. If the vendor doesn’t perform, by helping you reach your objective, then you find another vendor.

    • http://www.feld.com bfeld

      I have no idea if it’ll be drowned out by the screams. I’m not really worried about it though as I feel like we are connecting with thousands of entrepreneurs that we want to be connecting with.

  • http://www.philsimon.com/ Phil Simon

    It’s a potential point of differentiation compared to other incubators.

  • http://www.optimist.io/ Connor Murphy

    What an innovative idea. Simple, honest and very founder friendly. Congrats

  • http://www.startupmanagement.org/ William Mougayar

    That definitely sets a standard for others to follow.
    just curious – do they also have to give back the $18K if they wanted their equity back?

    • David Cohen

      yes, proportionally. if they are dissatisfied and feel we only earned 4% instead of 6%, then they’d return $6,000 of the $18,000 too.

      • Andrew Pitz

        I wish I didn’t have to ask this, but it is the world we live in… What happens when an entrepreneur decides that 2% is way more valuable than the 6k you paid for it? Perhaps before raising a large round from investors met thru the program? Or just because they believe strongly in what they’re doing? So they claim it wasn’t that valuable, provide some compelling reasons even if complete BS, and get their equity back and in 4 years exit for 100M+…

        I know you’ll probably say “Then we backed the wrong people in the first place” and you might not want to be involved no matter how successful they become, but I can imagine this situation may happen at some point. Then what?

        • David Cohen

          it could happen, you are correct. however, i think it’s unlikely. i think most people are fair dealers who do the right thing vs inventing “complete BS”. the spirit here is about dissatisfaction, not about a change in perceived value over 3 months (presumably where we have directly helped increase that value). if we’re a part of that, i have high confidence that they’ll recognize that. this is based on my experience doing this with over 400 companies to date. We want to achieve success with honorable people who are fair dealers. by giving first to them, we fully expect they will treat us fairly.

          • Andrew Pitz

            Thanks for the response! I agree with you, and honestly, given your experience and that of your team, I think you’ll probably be able to quickly identify a BSer. I’ve only worked for a VC firm for a few months, so I’ve looked at about 375 fewer companies than you have worked with (and thousands you have looked at), so I’m still trying to establish benchmarks for what makes a good team and what makes a good opportunity. Like the fund that is promising to vote their shares with their founders, or Goldman’s idea to let entrepreneurs share in the carry, I love seeing radical ideas that set the innovators apart. Here’s to continued success.

      • http://www.startupmanagement.org/ William Mougayar

        I was surprised that some media mis-interpreted this program by portraying it as “free until satisfaction”, instead “value with satisfaction guarantee”.
        For e.g. , if you go to Nordstorm, they don’t offer their products for free the minute you walk through the door, and ask you to pay if you’re satisfied. You pay, but can return the goods if you’re *not* satisfied. Only difference might be that Nordstorm doesn’t ask why you’re returning the product, whereas you need to know where/why the dissatisfaction occurred.

  • http://www.pointsandfigures.com/ pointsnfigures

    Echoing other comments, “This is really awesome. “. It struck a real chord in me. When I traded, I traded my own dough. Never had customers. Never had brokerage, never was phony. When I got into angel investing, I saw so much bullshit. So many fakers. I see people that say they are invested in their “fund”, when all they are doing is applying their management fee and not putting real cash in. I see all kinds of crap.

    This is true leadership and what sets TechStars apart from other accelerators. It shows integrity etc, but more than that it shows tremendous confidence in the value you bring. My experience with TechStars in Chicago has been great. Troy, Steve, and Sam bring it every day-with every class. I am lucky that they let me mentor there.

    Will other accelerators follow suit? If they are confident and add value, they will.

    • http://www.feld.com bfeld

      Thx! You nailed it – we wouldn’t do this if we weren’t confident in the value. I hope others adopt this in the spirit of being focused on the entrepreneur. There are way too many people in the world you extract something without providing real value.

    • David Cohen

      bingo.

  • mihirbhanot

    Love the “let’s put our equity where our mouth is” comment. This is a great way to make your actions match your words. I love this quote from “Batman Begins”: “it’s not who you are underneath, it’s what you do that defines you.”
    I recently pushed back on a startup who wanted to give me equity to “advise”, telling them that I’d be happy to keep talking for some time and if they felt like the advice was useful and added real value, then we could see. The founder was REALLY surprised :-) ..

    Great move!

    • David Cohen

      bingo. i have always done the same. it’s a simple manifestation of #givefirst.

  • Frank Traylor

    Wow, a fantastic move. Not only does it show great confidence in the program’s value but teaches a very important lesson for founders; think about your equity. Don’t give it freely, don’t clutch it closely, make every share matter.

  • http://www.linkedin.com/profile/view?id=8465000 AlexHammer

    You are amazing.

    TechStars is amazing.

    Enough said.

  • David Goldschmidt

    Brad, David and Team, good move! While it probably wasn’t a motivator, the expected infinitesimal utilization of the guarantee, will, over time, produce an extremely compelling statistic. “Ms./Mr. Founder, our guarantee has applied to X hundred startups, and not a single founder has requested a refund of their equity.”

    A guarantee with no known takers is far more effective than offering up a guarantee that’s merely a one-off risk mitigator. Of course, maybe you knew that ;-)

    Minuscule risk for (yet another) compelling argument for Techstars’ unfair (in a good way) advantage.

    • David Cohen

      thanks!

  • http://danielepstein.me/ Daniel Epstein

    This is what we did for Unreasonable@Sea and I think that no matter the case, it produces a win-win situation (wrote this post http://unreasonable.is/opinion/a-plea-to-startup-accelerators-hold-yourselves-accountable). I wouldn’t want Unreasonable to have equity in a company that didn’t think it was earned and if that was the case, as you mention here, the most valuable thing to learn would be what caused their dissatisfaction with the program. Ultimately, this will attract better companies, it holds Techstars fully accountable (and makes you more adaptable to future needs), and to be honest, it just feels like the right thing to do. Damned excited to see you all doing this! Very cool Brad

    • David Cohen

      thanks daniel! we are excited about it too and completely agree.

  • lawrence abeyta

    As consumers, we expect a return guarantee on most purchased products. Services don’t usually offer it, as a service is impossible to return and it’s value can be debatable. If you are setting goals in product development, customer acquisition, revenue, etc., early on, this becomes measurable. I like the fact that this creates an environment in which both the mentors and entrepreneurs must be more disciplined and realistic.

  • http://hookify.io Rich Kopcho

    I love it. I assume you signup with Techstars the same way as always—then if not delighted, request equity back guarantee.

    It’s a great way for TS to get valuable focused feedback during the program. Hopefully the teams will be discussing the value received with Techstars staff throughout the 3-mo process because it should never be a surprise at the end. Hum, signup? Or not signup?

    • David Cohen

      exactly right rich.