TechStars Accepting Applications from New Crop of Rejects

Posted on January 27, 2008
Filed Under Web 2.0 Kool Aid |

TechStars, a Colorado-based YCombinator copycat, recently started accepting applications for 2008. What does TechStars offer accepted applicants? To quote TechCrunch:

TechStars offers up to $15,000 in seed funding ($5,000 per founder, max $15,000) to broke entrepreneurs with a good startup idea. Ten winners will be selected, and winners will need to spend most of their time in Boulder over the Northern summer building out their ideas. In return, TechStars takes 5% of the equity in each startup. Winners have full use of TechStar’s offices, access to legal advice, and are able to tap into a strong list of startup mentors to help them build their idea (list here). Non-US companies can apply, although must be able to legally spend most of summer in Colorado.

I’ve discussed why I think the model popularized by entities like TechStars and YCombinator is no good for entrepreneurs in my past comments on TechCrunch. See here, here, here, here, and here.

But I thought it’d be worthwhile to briefly explore TechStars from the investor perspective. I think the analysis is quite simple.

On one hand, there are certainly young geeks out there with ideas for web applications, the skills to implement them and a desire to implement them. All that they think they lack is capital and access. TechStars provides a small amount of capital ($5,000 per founder up to $15,000) and some resources (legal assistance, mentoring, etc.) that ideally gives these young geeks all they need to get their ideas out of their head and onto the web in the form of a working product. In a sense, TechStars tries to leverage Gordon Gecko’s advice: “give me guys that are poor, smart, hungry.”

I like Gordon Gecko and I think a lot of the things his character promoted make sense. But on the other hand, I still think TechStars is a poor deal for investors for a number of reasons:

There probably is some opportunity in the “microfunding” world, but I’m not convinced that TechStars (and YCombinator) have a viable long-term model for exploiting it. From both the investor and entrepreneur perspectives, I just don’t see how the model is going to work over the long haul, especially in a down-cycle.

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