A Guide to Micro Seed Funding

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    Introduction
    Traditional Businesses
    Opportunities Arise Online
    Micro Seed Funding
    Y Combinator Alternatives

    ADVANTAGES:
    - Starting Capital
    - Ability to Sell Early
    - Relocation to Startup Hub
    - Weekly Dinners
    - Knowledgeable Advice
    - Demo Day
    - Experience

    DISADVANTAGES:
    - Low Valuation
    - High Risk of Failure

    MY EXPERIENCE

    HELPFUL RESOURCES


    This website was created
    by Dan Veltri, an entrepreneur
    and founder of Weebly.

    Other Micro Seed Funding Programs

    Due to the success of Y Combinator’s micro seed funding model, a series of competing programs have emerged to provide entrepreneurs with similar benefits.  Investors have realized that this model works well, and they want to take advantage.  Y Combinator has been successful primarily because of the advice and connections it provides to young founders, and this is not easily reproduced.  Since the alternatives to Y Combinator are so new, it’s yet not clear if they will provide the same level of benefit to startup founders.

    TechStars

    In January 2007, TechStars started accepting applications for their summer program located in Boulder, Colorado.  Much like Y Combinator, Techstars gives around $15,000 of seed capital for a 5% equity stake.  The founders work for three months in office space provided by TechStars under the guidance of experienced entrepreneurs such as David Cohen and Brad Feld.  TechStars has educational sessions for the founders three times per week, covering topics such as working with early adopters, scaling for growth, and how to give an elevator pitch, whereas Y Combinator has weekly speakers who focus more on their personal advice and experiences.

    These differences demonstrate that TechStars is structured more like a business incubator with supportive resources and services offered in house.  In comparison, Y Combinator has a more hands-off approach, letting the entrepreneurs focus full-time on their startup with only a single meeting per week.  Outside of the scheduled dinners, the YC partner’s are regularly available to assist with a startup’s needs.  

    The second significant difference between the programs is the location.   Y Combinator’s Silicon Valley and Boston locations are regarded as the top areas for startups.  TechStars’ Boulder, Colorado location is also an entrepreneurial hotspot, but is not as highly ranked. [1]  Location is not of much importance while in the building stages of a product, but when a company is raising money, talking with press, or doing partnership deals with others, it’s crucial.  Therefore, startups that take part in TechStars would have to relocate if they want to move away from Boulder, causing distractions and potential service interruption if their servers are moved as well.


    Seedcamp

    Seedcamp is replicating Y Combinator’s model in London in order to attract entrepreneurs from around Europe.  Seedcamp has an evaluation process much different than the other micro seed funding programs.  During September 2007, the first “Seedcamp Week” will take place with “a diverse mentor network of serial entrepreneurs, corporates, product designers, venture capitalists, recruiters, marketing specialists, lawyers and accountants that will help the selected teams put together the foundations of a viable business.” [2]  At the end of the week, 5 of the 20 teams selected to attend will receive €50,000 for a 10% equity stake in the new startup.  This would place the valuation of the company at €500,000, more than double the Y Combinator or Techstars valuations.  The higher valuation is appealing, but the founders have to sacrifice a comparatively bigger portion of equity to receive it.  

    The remainder of the Seedcamp program is structured similar to the Y Combinator model with 3 months of development time and an investor demo day at the end.  The weeklong evaluation process Seedcamp uses to choose its companies may prove more successful than Y Combinator’s 15 minute interview, given that they can attract high caliber applicants.



    NEXT:  Micro Seed Funding Advantages >>


    Notes:

    [1] http://www.paulgraham.com/siliconvalley.html
    [2] http://www.seedcamp.com/pages/about_seedcamp

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