I get asked a couple of questions by a lot of entrepreneurs. They are
- Should I go to this accelerator?
- Is this a good term sheet?
Both these questions are different, but have some commonality to them.
On the accelerator. It depends. A few years ago when Raman Chadha and I looked at the landscape of accelerators, we found over 100 of them around the country. Obviously, TechStars and YCombinator lead the way. But, there are plenty of others. One reason Raman is doing what he is doing at the Junto Institute is because of the abundance of accelerators. By the way, I highly recommend Raman’s program. It’s excellent.
The first thing I would want to know about an accelerator is data. How many companies? Did they raise capital? Were the companies successful? I wrote more about that here.
On term sheets. Once you understand the terms on the paper, you can do the math and figure out how much of your company you are selling to outside investors. You can start to get a feel of how often you are going to have to raise money. Things start to take shape. If any terms are particularly nasty, like liquidation preferences or change of control issues, you negotiate.
But, the terms on the term sheet are just that. They are words on paper.
The real question you should be asking yourself when it comes to accelerators and terms isn’t the black and white. It’s the gray. Does the VC firm/accelerator fit with the company culture I am trying to build? Do I personally get along with them? How do members of my team feel? Am I going to have to do something radical, like move my company to another city, in order to get the deal done? What do I think about those changes?
By cultural fit, I mean what it feels like inside your stomach. Inside your mind. Inside your mental conscience. Cultural fit has nothing to do with categories like gender or where you came from.
If there isn’t a cultural fit as well as an economic one, my advice would be don’t do the deal.