Will Techstars’ new equity policy quiet some critics?

The last TechStars Boston Demo Day, in May 2013.
The last TechStars Boston Demo Day, in May 2013.

Techstars has long been known as one of the best incubator programs in the country. Based on the success (and investment fundraising) of many of the companies to graduate from Techstars Boston, I have argued that the local branch of the program may be the “model” Techstars program.

However, the growth of Techstars alumni like Localytics, CoachUp, Kinvey, GrabCAD, and others has not insulated the program from some criticism. Like most things, success can put you under a bigger microscope.

One of the most common complaints about Techstars is about the unofficial “entry fee” for the program, a sizable chunk of equity in the companies that join Techstars. This is something that I have heard from many venture capitalists and startup founders.

Techstars startups often have to give up between 7-10 percent of equity in the company, which is a sizable amount of equity considering that many early-stage employees often fight for 1-5 percent of ownership in companies they are helping to build. (There are also rumors that swirl around the VC and founder underworld that Techstars sometimes takes much larger and also smaller pieces of equity for some companies.)

Today, Dan Primack of Fortune reported that Techstars will now offer a guarantee that allow companies to renegotiate the equity at the end of a session. (See update.)

The equity ask is not without merit. Many Techstars alumni swear by (some of) the mentorship and early-stage guidance they received while taking part in the program. Techstars also gives each company a seed-stage investment as well.

However, today’s move by Techstars isn’t too earth-shattering: Boston-based accelerator MassChallenge, which has 128 startups taking part in its early stage startup mentorship and guidance program, doesn’t take any equity from the companies that take part (it doesn’t give any funding either, but instead gives sponsored cash prizes at the program’s completion).

Additionally, the move to get rid of the equity grab doesn’t eliminate what may be the more loudly growing criticism of Techstars and programs of its ilk (including MassChallenge): Some mentors who give advice have zero business doing so—many have done little in their careers in the way of building a business that would earn them the status of “Techstars mentor.”

Please add your opinion below on what effect the elimination of the equity requirement will have on Techstars and other incubator/accelerator programs.

Dennis Keohane was a Senior Staff Writer for BetaBoston.
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