Bootup Labs is structured as an investment plus a services contract. They give you $50k in exchange for 5% equity, then you immediately pay the $50k back to them in exchange for the office space, accounting services, legal services, mentoring, et cetera. Then they give you a $100k line of credit which converts (at their option) at 1% equity per $10k. It's a very effective way of protecting themselves from downside ri…
Incubators that ask you for money _and_ equity make me a little bit sick.
Either sell me a service or give me cash for equity. Don't do both.
When I saw this title, my immediate thought was "hmm, I wonder if this is about Bootup Labs?" I've met the people behind Bootup Labs, and I like them. They're smart. They're enthusiastic about what they're doing. But I was never really convinced that they were able to make things work financially. I've seen enough startups that I can usually tell when a startup is running on fumes and spending all their energy on try…
In case this makes anyone think cperciva is not very bright, I replaced the original HN title with the title of the blog post itself.
Don't worry, Paul, I'm sure everybody here already knows that I'm not very bright.
Bootup Labs is structured as an investment plus a services contract. They give you $50k in exchange for 5% equity, then you immediately pay the $50k back to them in exchange for the office space, accounting services, legal services, mentoring, et cetera. Then they give you a $100k line of credit which converts (at their option) at 1% equity per $10k. It's a very effective way of protecting themselves from downside ri…
It's pretty common for VCs to have the company being invested in pay for legal/research/etc. expenses out of the investment amount -- so you raise $500k and immediately pay $50k back to the VC for their costs.
It's weirder here due to the small scale of investment relative to the costs, and the non-cash services, but not totally implausible.
Wow, they're really clutching at straws. The legal fees were presumably spent setting up a Canadian corporation. What use is that to the founders now? Similarly, the rent being paid - the cost of throwing all your stuff out (and presumably having to buy it again later) will be for most people way higher than a few months worth of rent. It's often too easy to jump to the wrong conclusion... but I'm struggling to see a…
Correct me if I am reading too much into their response. But it sounds like they were at the tail end of closing a round of financing. The investors didn't like some of the startups in the current cohort so they made it a requirement that Bootup cut them from the program before the new round closed. So instead of honoring their word they choose to take the money. Very poor business practice IMO.
I should clarify that by "decent explanation" I meant one that would make me think, "oh, that's reasonable", not merely one that fits the evidence!
Acquisition, investment or acceptance into an incubator are all great things but don't build your startup in such a way that success is dependant upon them.
Ultimately, your success will depend on one thing - you. Build your business for profitably and don't count on money until it's safely cleared in your account.
As a manager of Bootup, I can assure you that we haven't been personally paid anything. The $50k is funnelled through the company to maximize canadian tax credits, which can amount to a meaningful amount of money. And it's used to pay for rent, legal, accounting, and other services that are for the benefit of the startup.
As a manager of Bootup, I can assure you that we haven't been personally paid anything. My apologies. I had understood that you were drawing a salary from Bootup Labs based on a conversation I had with Boris a few months ago, but I can't remember exactly what he said, and it's quite possible that I misinterpreted him. Even if you're not personally getting paid anything, I think $50k is a rather generous fee given tha…
Other accelerators get the same fee as well. There are expenses to operate the accelerator plus an investment in the startup, which is exchanged for % in the startup. Often 5%-6%. If you add this up, effectively, the companies are getting $60k of real money spent on them for 6% of the company. That's a $1M post money value. (note: YC is probably an exception to this math since it has no physical space) But, that's how it works for most accelerators. In Bootup's case, we simply funnel the operating costs through the company in order to maximize canadian R&D credits which can amount to 50%+ of development costs. It's just a smart way to leverage more money into the startup, but in the end, the math works out to be the same and those fees are paid to operate the accelerator.
It sounds like Bootup Labs wasn't able to draw down on some of their LPs. So, it's not nefarious, but it would make me think twice before accepting (the promise of) money from Bootup Labs.