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Boulder-based Techstars has just announced starting in 2015 participants in its accelerator programs will receive an equity back guarantee.
“The reason for this is quite simple. 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,’” said Techstars managing partner David Cohen, in a blog post.
According to the new guarantee, if Techstars participants feel unsatisfied with their time at the program they will have up to three business days to reduce or reject the accelerator’s equity stake. This new agreement has been incorporated into Techstars’ standard terms. Previously, Techstars gave program participants a $118,000 seed investment in exchange for a 7 to 10 percent equity stake.
It is unclear if the equity back guarantee applies to Techstars corporate partnership programs, like Techstars Disney or Techstars Nike. It is also not clear if a company rejects or reduces Techstar’s equity if they will be ostracized from the accelerator’s network of alumni companies. The Techstars network is the key value proposition to this new equity back guarantee, so network exclusion seems likely.
Techstar’s equity back guarantee may be a response to the flood of capital entering the tech startup world. The more and more investors are throwing money at the tech sector, the more choosey founders can afford to be with who they sell equity to and at what price. Techstars believes that they can differentiate themselves from the flood of cheap capital with their rich network connections and advice.
“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,” said Cohen. “But we’ve noticed a very clear and consistent pattern: they’re never skeptical of the value after the Techstars program ends. In fact, they tell us consistently that it was completely worth it. The equity back guarantee completely removes this up front concern that some may have.”
