How to evaluate an offer from a startup incubator


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The presentation outlines the parameters a startup should consider when evaluating an offer from an incubator - independent study

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How to evaluate an offer from a startup incubator

  1. 1. How to evaluate an offer from a Startup Incubator<br />1<br />Made by Shailendra Singh<br />
  2. 2. Calculate valuation & Determine value<br />Scrutinize the Investment Structure<br />Research the Mentors<br />Inspect the Office Space & Incubator’s End Class Date<br />Search for the Incubator’s PR & Marketing Efforts<br />Determine the Opportunity Costs<br />Conclusion<br />2<br />Made by Shailendra Singh<br />
  3. 3. Calculate Valuation & Determine Value<br />Incubators offer very little pre-money valuation<br />Measure equity percentage (not monetary value) to all intangibles and tangibles<br />Equity % of an incubator in an startup = equity % on seed capital – equity % of intangible <br />Intangibles are mentorship (equated to advisory board) + convertible debt with no cap/conversion discount<br />An incubator’s offer of $25,000 at 6 % equity should be revised to include equity % of intangibles to calculate pre-money valuation<br />3<br />Made by Shailendra Singh<br />
  4. 4. Scrutinize the Investment Structure<br />Incubators may structure their investment in a startup to get high return across the portfolio<br />This may include taking preferred stock, protection against dilution or setting an option pool<br />Incubator’s can play the option pool shuffle card that can dilute the pre-money valuation for the startup<br />The question most important is whether the incubator’s T&C can hinder future financing from VC firms<br />4<br />Made by Shailendra Singh<br />
  5. 5. Research the Mentor <br />Incubators put their onus on providing mentorship, so research them to assign the right intangible value in terms of % equity!<br />Relevant questions to ask: <br />do they fit into our team and product?<br />Do they know our space?<br />Would we get to choose our mentor group? <br />How often would they be available for advice or drop ?<br />5<br />Made by Shailendra Singh<br />
  6. 6. Inspect the Office Space & End Class Date<br />Being sure if the startup can be productive in the office space provided<br />Is the office space private or shared!<br />How is the conference room and how hard is to schedule calls!<br />When does the benefits of mentorship and office space end (mostly post demo-day)<br />What kind of support are the incubator’s willing to provide post-demo/engagement<br />6<br />Made by Shailendra Singh<br />
  7. 7. Search for Incubator’s PR & Marketing Efforts<br />What does the incubator does to market itself and its incubated startups<br />Startups should check for media coverage/photos of demo-days of incubators!<br />Startups should check with previously incubated class of startups that can give feedback<br />7<br />Made by Shailendra Singh<br />
  8. 8. Determine the Opportunity Costs<br />The trade-off is sometimes in choosing b/w an angel investor or an incubator<br />The advantage with incubators is that they run with measurable goals with a set timeline<br />The option to go with an incubator will be with lesser money but better quantifiable intangibles that they can put together best<br />8<br />Made by Shailendra Singh<br />
  9. 9. Conclusion <br />Incubators’ T&C should never hinder current valuations or future financings<br />Incubators’ intangible contribution should be more useful than option to choose to work with cash<br />Incubator should be the best springboards to future mentors but also have a great office to work!<br />Startups should choose an incubator assuming that they will amply fit an as its PR/marketing partners<br />9<br />Made by Shailendra Singh<br />
  10. 10. Shailendra<br />10<br />Made by Shailendra Singh<br />