‘Tis the season for Feed CapitalPosted on January 27, 2008
Philippe Chrun of MyCarPoolStation wrote an interesting post last Fall. It’s a brutally honest assessment of his performance as a first-time founder and CEO of a startup that failed to gain traction. He’s learned some precious lessons in the past 18 months that can’t be taught in school. It’s a pity though, that he had to learn the hard way: on his own and burning through love money. Although, this has been a common path aspiring entrepreneurs have trod, Feed Capital promises a shorter, easier route.
feed capital [noun]: 1. a small financial investment in a startup venture, so called because the investment barely provides the founders with enough money to eat and keep a roof over their heads; 2. an investment whose primary value lies in access to people and their business networks.
The original feed capital program was of course YCombinator (currently accepting applications), but Seedcamp and TechStars (also accepting applications for summer ‘08) have since popped up and, rumour has it, something is in the works for the Great White North as well. These programs select the best entrepreneurs and ideas from the many applications they receive, match them up with experienced mentors and provide them with advice and introductions they would otherwise have a hard time obtaining. They then have a few months to leverage that support and build a company. When the program ends, it is sink or swim time; hopefully, the company has achieved take-off velocity and is able to raise its next round of funding. If not, it dies a quick death and the founders, wiser and with a solid network behind them, are free to move on to their next venture. Fail fast is becoming the new tech entrepreneur mantra.
So, how much equity are you willing to give up in exchange for access to the right people?
5 Comments
Another interesting post. I do not dispute the need for “Feed Money” however an important aspect of it is the “Dumb money test” as pointed out by http://www.venturehacks.com :
“Would you add the investor to your board of directors (or advisors) if he didn’t come with money?”
http://venturehacks.com/articles/dumb-money
So far it looks like the MontrealStartup team is positioning itself to become a significant player in Montreal/Canadian high tech scene, with significant “smart money” potential. Go ahead.
This is a good post, and it’s nice to see more Canadian investors fulfilling the need for this pre-early-stage capital (if you will). The importance of feed capital is often not fully appreciated by VCs for whom smaller amounts of investment capital, less than $500K, falls below a mandated investment threshold. This evolutionary stage is critical for all companies, particularly online media companies for whom proof of concept can occur well within a year of receipt of feed capital and the launch of a beta offering.
I love the idea of feed capital. What I still haven’t figured out is how can an investor determine the probability of success of one of the entrepreneurs, so early in the game.
Paul Graham seems to have a set formula, but it’s mostly based on his experience and personal opinion. It would not work for everyone.
I hope this concept comes to Canada soon because i’m also running low on the so-called “love money”.
Great post!
One source of financing for QC startups requiring significant R&D and that are around for at least a year is governmental credits. I’ve wondered if a VC fund could hire potential founders to do R&D for 3-6 months - with the VC pocketing the subsidies.
Hi,
Europe knows the same problems, there is an initiative in France called Fundcamp, if you speak french, you will find more information here:
http://www.frenchweb.org/2008/01/18/frederic-baud-fundcamp-paris/
Saul Klein from Index venture has done an interesting presentation last year at the Next Web in Amsterdam “Why Europe need to seed the growth of its new stars”:
http://blog.menneveux.com/2008/01/21/why-europe-need-to-seed-the-growth-of-its-new-stars-saul-klein/
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