Have Accelerators Reached Saturation Point?

Discussion

A few weeks ago, I attended the ribbon-cutting ceremony for the new MassChallenge accelerator space. There were hundreds of people there, including the founders of TechSandBox, an accelerator in Hopkinton, MA, and Smarter in the City, an “inner city” accelerator in Roxbury. Foley & Lardner is, of course, deeply involved with many accelerators in Boston and elsewhere, including MassChallenge, LabCentral, Techstars and Plug and Play. We also work with companies at many other accelerators, including the PayPal Start Tank, the Canadian Technology Accelerator, the Hult International Business School accelerator, and so on. Many of these new accelerators focus on a particular niche, whether a specific industry, a specific location, or a particular business or financial model. Some take equity from each company, while others, such as MassChallenge, do not. Some offer space, connections and mentorships, while others also provide price money or seed capital. Of course, some of them deliver on that promise better than others.

It’s amazing that each of these accelerators is able to attract suitable companies. This is especially significant, given that accelerators must renew their portfolio of companies within a very short cycle: once or twice a year. In contrast, venture and angel funds hold onto their portfolio companies for a number of years.

I wonder. Can there be a sufficient “inventory” of startup and early stage companies to fill the pipeline for all of these accelerators? Are there enough sponsors and mentors to go around? Will the quality of mentorship suffer as quantity increases? Is there enough available financing, whether angel or venture, to provide the graduates of these accelerators with a reasonable path to success? Continue reading this entry

Raising Money? Don’t Forget About the Tax Credits

Discussion (2)

With many states continuing to use tax credits to seed entrepreneurial growth, entrepreneurs and legal counsel must understand the applicable state-sponsored programs and position qualifying businesses to take advantage of these programs. Some government officials and scholars debate the extent to which government policy should seed entrepreneurial activity. Nevertheless, many states continue to view early stage investment tax credits as a “win-win-win” because early stage businesses receive capital, investors receive a tax credit, and states enhance the local economy through increased employment and innovation. Each state-sponsored tax credit program is unique and commonly differs in important aspects, including (1) the types of businesses that qualify under the programs, (2) the amount of tax credits given to investors, and (3) whether investors are compensated with refundable or non-refundable tax credits.

Of the early stage tax credit programs within approximately 20 states, each state’s program varies based on the types of businesses that qualify under the program. States generally require the same qualifications to ensure businesses are truly early stage businesses and are predominately located within the state. However, each state varies based on the principal industry of the business allowed under the program. Some states create a narrowly defined focus of acceptable industries, such as bioscience, advanced materials, information technology, and clean technology. Other states allow businesses from a broader range of industries, as long as they promote the purposes of the program. Most states define industries that automatically do not qualify for tax credits, including real estate, professional services, and financial services.

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MassChallenge Boot Camp 2014

Foley & Lardner was pleased once again to sponsor the 2014 MassChallenge Boot Camp. During the 2014 Boot Camp, Foley attorneys dove into the mix of startups, participating in events and offering mentorship. Held for five days between June 26 and July 2, the Boot Camp featured an array of prominent panelists discussing the topics of culture, funding, marketing, and pitching.

A few photos below highlight several of the great MassChallenge Boot Camp events:

 

Life Science Mentor Matching

Startups in the healthcare and life science sectors came together at Foley’s Boston office on June 30, 2014. All available mentors in the MassChallenge community with expertise in these fields had a chance to meet these teams and begin to understand how their skills could benefit this year’s competitors.

 

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Do You Need a Pre-Nup … for Your Co-Founders?

Handshake

When you pop the question, “Will you co-found with me?”, you are probably not already thinking about separation.

However, not all partnerships will go the distance. Personalities will clash. Creative visions will differ. Personal circumstances will change. Often, a parting of ways is sudden and less than amicable. Without a pre-nup, the departure of a co-founder may lead to unfair results. Why should your partner keep half of your company if he or she decides to raise alpacas in the Andes? Continue reading this entry

Term Sheet Math — When Is Your 66 Percent Really 52 Percent?

Reading

When negotiating valuation for a financing, an investor may conduct detailed due diligence and present you with a term sheet that reflects multiples, discounts, comparables, and so forth. In the end, you are negotiating for percentage — how much of the company will the investor get, and how much will you keep? Your investor is focused on maximizing return on investment. You are focused on keeping meaningful upside for your innovation and hard work.

For example, if you raise $5 million on a $10 million pre-money valuation, you will be giving the investor 33 percent of your company. You keep 66 percent. But that 66 percent may not be really be 66 percent even before you take into account any later dilution by subsequent rounds of investors. There are at least three reasons why.

First, investors often invest on a “fully diluted basis,” which includes an assumption that an unused stock option pool is actually issued and outstanding. The theory is that you will need to issue options to incentivize your employees to achieve the growth reflected in your business plan, and that you received a valuation based on your entire business plan. The result: Only you are diluted by the option pool. Continue reading this entry