Five Early-Stage Alternatives to the Traditional Investment Model of Growing Startups

Written by Jolie O'Dell / July 9, 2009 8:40 PM / 7 Comments

This post is part of our ReadWriteStart channel, which is a resource and guide for first-time entrepreneurs and startups. The channel is sponsored by Microsoft BizSpark. To sign up for BizSpark, click here.

The ways to grow a tech startup company are outnumbered only by the ways to skin a cat.

In between multiple rounds of venture capital from investment groups and skin-of-your-teeth bootstrapping, there exists an ecosystem of organizations designed to grow startups with a mixture of business acceleration, development assistance, small rounds of funding (usually just enough to keep Top Ramen on the table), and general advisement. Each organization has its own trademark way of doing things, and here are five that we find fascinating.

Y Combinator: From "Babies" to Businesses

This Silicon Valley-based venture firm is known for attracting some of the youngest technical talent around and molding their inklings into viable companies through a three-month process that occurs twice a year. The hacker-heavy program is headed up by Paul Graham and Anybots founder Trevor Blackwell, both Harvard grads.

How They Invest: Y Combinator gives the startups a small amount of money (around $20,000 or less) in exchange for a 2-10 percent share in the company.

Startups They've Helped: Disqus, Posterous

TechStars: Mentors as Far as the Eye Can See

This organization began in Boulder, CO, and has recently branched out to a new office in Boston, MA. The business acceleration summer program is best known for its huge, diverse, and truly impressive stable of experienced mentors, who run the range from entrepreneurial rockstars to financial geniuses. We've done a slew of video interviews with TechStars folks lately; check them out.

How They Invest: TechStars gives startups $6,000 per founder in exchange for roughly 6 percent equity in the company.

Startups They've Helped: SocialThing, BrightKite

Remarkable Wit: Venture Technologists

The Nashville-based offices of Remarkable Wit are basically a sweatshop for greatness with no capital added. This team invests development talent, consulting services, executive expertise, and operations and production labor to get startups up and running. Founded by Emma email marketing alum Marcus Whitney, this organization takes a longer amount of time than a business accelerator to become a true technology partner to the companies in its care. Check out our video interview with Whitney earlier this year.

How They Invest: Remarkable Wit invests time and labor - but no capital - in exchange for equity.

Startups They've Helped: Moontoast

SproutBox: More Money, Not Necessarily More Problems

In Bloomington, IN, the SproutBox team is taking four startups at a time and pumping around a quarter of a million dollars into each one over the course of ten months. In addition to all that mouth-watering lettuce, the 'Box is also investing teams and resources. Although they just launched this year, they plan to start a new cycle every three months.

How They Invest: SproutBox gives funding and resources in exchange for equity.

Startups They've Helped: DecideAlready, CheddarGetter

LaunchBox Digital: Capital (And More!) in the Capital

This firm, based in Washington, D.C., offers capital, advisement, and all-important access to investors and press for early-stage startups. Their inaugural class from summer 2008 took nine startups through a 12-week accelerator program with enough seed funding to get them started. Once the program is finished, demo days take place both in the northern Virginia tech corridor as well as Silicon Valley.

How They Invest: LaunchBox offers startups up to $20,000 for 6 percent equity in the company.

Startups They've Helped: ShareMeme, Buzzable

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Comments

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Hey Jolie,

you missed Seedcamp over here in the Europe

http://seedcamp.com/

Posted by: Darren Stuart | July 10, 2009 2:27 AM

The title is quite misleading. YCombinator-style programs count as one alternative. This is like titling an article *5 Alternatives to the Traditional Mortgage* and then listing five different but nearly identical ARMs from five different banks.

Posted by: Micah | July 10, 2009 4:14 AM

@Micah - Well, each of these alternatives *is* different, particularly the polar opposites of SproutBox and Remarkable Wit. And after all, these are just five that we find particularly interesting. =)

Posted by: Jolie O'Dell | July 10, 2009 4:45 AM

Web startups usually need 6 things:

1. Money
2. Advice
3. A way to get their product built
4. A way to get their product in front of an audience
5. A little business services (legal/accounting)
6. Physical workspace and equipment

The traditional model is to give you money (and maybe a little advice) then use the money to buy the rest. Rather than just money, the above more directly address these other needs to varying degrees.

Ycom, TechStars, and LaunchBox are the most similar providing lots of advice, and a little money on a fixed cycle. Their are a ton of others in this category.

Remarkable Wit is a development shop (#3) that in some cases does work in exchange for equity or an equity/cash mix. They don't run on a fixed cycle, but rather a sliding scale of equity based on the amount of work needed.

SproutBox (my company) is trying to address the range of startup needs (1-6). We invest a team of full time developers, marketers and business experts along with a little capital. We operate on a fixed cycle, take a predetermined equity stake and don't have any traditional 'paying' customers.

So, while I don't see five completely different models, I definitely see 3. And even within the first group there are variances in approach to space and services.

The exciting thing is that entrepreneurs have meaningful options. Gone are the days of VCs dictating the rules of the game entirely. I think that is a good thing for those of us who love startups.

Posted by: Mike | July 10, 2009 6:29 AM

thankyou

http://www.pursaklargencleri.com

Posted by: pursaklargencleri | July 10, 2009 7:14 AM

$20,000 for 2-10% of your company? Giving up any % for such a small amount of money seems awfully desperate to me. Better to hustle for a month or two and get the $20k yourself.

Posted by: Jeffrey Henderson | July 10, 2009 10:13 AM