They thought they were joining an accelerator – instead they lost their startups
Comments
ultrasaurus
pavel_lishin
Don't listen to this charlatan. For only $6,499 I'll introduce you to a chap who won't charge you a cent over $6,498 for an introduction.
oxcabe
Who pays for a full introduction nowadays, though?
Hear me out - we are introducing a PaaS (Pitch as a Service) platform so that founders only pay for what VC is interested in listening.
It's just $0.003/word, allowing you to optimize your introduction. It's also lazily evaluated: if someone gets bored with it, you get cut off from your introduction and just pay for what you said up to that point.
We are offering discounts for the words "AI", "LLM", and "web3". Those are half the price.
hedora
I charge as much as the second lowest bidder.
Second lowest because sustainable value extraction is important to me.
atherton33
Of note from the article: she complained and was refunded the money after being stood up for the meeting, but they never cancelled the contract she paid to sign that gave them the right to buy her out of her own company for pennies, so once it passed to bankruptcy the creditors still took her company.
darkerside
Wouldn't a contract like this be considered unenforceable? There were no services rendered, no exchange of value
unyttigfjelltol
The issue is they dropped a bet-the-company litigation on 1,000 startups that are not positioned to do anything but close operations.
darth_avocado
The contract SHOULD be unenforceable, however, not sure if bankruptcy court will actually resolve that matter. Maybe it would be a separate lawsuit?
SpicyLemonZest
IIUC, the problem is that the founders have no good way to force a resolution at all until whoever buys the warrants attempts to exercise them.
deaddodo
It's not about the former point, in contract law, but the latter. They could have rendered services, but if they're far out scaled to what the other party offered they would be considered inequitable and breachable.
This is the primary basis that California used to disqualify non-executive non-competes (before they were outright legislated out).
lupire
California's basis was "reatraint of trade". Equitability was not a factor, regardless of how much was paid for the noncompete.
The legal basis for voiding contracts is "unconscionability".
deaddodo
> Equitability was not a factor, regardless of how much was paid for the noncompete.
There was no equitable value, which directly led into economic restraint and servitude arguments.
> The legal basis for voiding contracts is "unconscionability".
Not sure what you're referring to here, but you should review "balance of contract" and "fair and equitable terms" in US and California contract law.
langsoul-com
Founder has no money to pay for lawyers. No doubt those fees would bankrupt the company completely.
deaddodo
It's important to note that legal fees can be deferred in California, for this exact reason.
In addition, if they have a strong case and a law firm believes they could gain more than their fees, they'll often still take the case.
In other words: Do not let the idea of vague "legal fees" scare you off from pursuing a genuine grievance. At least consult with a few law firms.
tptacek
They didn't directly take her company, right? They held on to warrants for some % of the company, which killed her chances of fundraising?
morgante
I don't really understand how these predatory businesses continue to exist.
I understand some entrepreneurs are very out of the loop / far from the VC ecosystem, but even just Googling about it you will find lots of clear advice to never pay for introductions or accelerators.
OJFord
It's just falling for a scam like any other really isn't it? It happens, the promises you want to believe, etc.
We can sit here and say we don't understand how people fall for Nigerian princes, attorneys for the estate of long lost cousins, and all that sort of thing, but clearly it works on some people vulnerable and wishful enough to believe it.
iamleppert
Add TechStars to the list of accelerators to be avoided at all costs. They make an investment in your company on terms they can claw back the money at any time. Most of these accelerators provide little to no value, in my experience. Unless you need to know what “product market fit” means. Hilarious.
xpl
> They make an investment in your company on terms they can claw back the money at any time
It is a loan then, not an investment.
IncreasePosts
Even worse - loans can't usually be clawed back at any time
singleshot_
Perhaps this is what you meant by usually, but otherwise I suggest reading the fine print on your home line of credit, if you have one.
withinboredom
Nearly all loans I have seen have a provision in the contract that the entire loan can be called at any time.
GJim
I've never seen this in my life!
(The exception being overdrafts in Blighty which don't have fixed repayments agreed. Even then, the bank can't act unfairly).
Where do you live where this is the commonplace? Such terms would be laughed at here.
withinboredom
I've lived in the EU and all over the US. I've yet to see a loan where there isn't a clause allowing them to collect the entire loan under certain conditions, or even, in some cases, for any reason. Would you loan a bunch of money to someone if you couldn't say "sorry, you lied to me and I want my money back" or "you've missed 8 payments in a row, I want the remainder now and if you don't have it, we'll go to court?"
Check your loan agreement, I'm fairly confident there are ways for them to collect the full amount immediately.
GJim
> under certain conditions
This is very different from allowing the loan to be recalled "at any time" as you first stated.
cjblomqvist
Certain conditions and any time is quite different though
bratwurst3000
Is this a American thing?
justinclift
Seems to be common in at least western countries.
brianoconnor
Defo not the case here for consumer loans. A German bank cannot tell you to pay back a loan earlier than agreed on in the contract.
johnhaltonx21
they can. if some of the circumstances that allowed you to get the loan changes. They can terminate the loan agreement and demand repayment in full immediately.
TravisPeacock
I think this is pretty common in loan agreements but I would guess it's rare to have this actually exercised because usually the change in circumstances is going to be something that's going to make repayment harder (no one is cancelling the loan because you notified them that you now make way more money). Trying to collect the full loan from someone with less money is going to be tough and if they then put them on a payment plan then they didn't achieve anything.
Plus it isn't great for customer relations and poor people are great clients for a bank who knows they can hit them for more and more fees.
RobRivera
>at any time
>under certain conditions
Pick a lane, marty
dryanau
What? No they don't!
fuzzythinker
Any source to your avoid TechStars advice?
chambers
This piece goes into some detail: https://www.founderscoop.com/2024/what-went-wrong-at-techsta.... An erudite and incisive autopsy of a disintegrating accelerator.
I'm no longer in the startup scene so I can't vouch for its facts, however.
fuzzythinker
> https://www.founderscoop.com/2024/what-went-wrong-at-techsta...
Thank you, it's what I'm looking for to understand why.
threeseed
The other problem with advice is that TechStars operates like a franchise.
So you don't know which of the many accelerators are problematic or not or what their incentives are.
avarun
Not anymore. They switched to a centralized model under their new CEO.
moralestapia
Most VCs add zero value aside from the money. Bootstrapping is always better, if you can do it, of course.
Exhibit A: Naval Ravikant, the flagship SV investor, widely regarded to as "a wise man", just released a kind of crappy messaging app that flopped. Imagine having unlimited leverage, unlimited money, unlimited reputation, a huge audience already in place and still that not being enough to put out a competent product. Now imagine this guy asking for 20-30% of your company equity in exchange for "advice", lol.
dtnewman
No one gives away 20% of a company for advice. He gives them capital. Hopefully connections. And founders can take or leave the advice.
Anyway, he is a successful entrepreneur having built AngelList. Sure, maybe he isn’t Midas, but a single failure in a startup doesn’t make someone an idiot. But assuming you are referring to AirChat, it seems too early to call it a failure anyway.
moralestapia
>No one gives away 20% of a company for advice.
You'd be surprised at how common that is.
Wouldn't you be inclined to believe that @naval wouldn't want to use that capital, connections and whatnot to support the single project of its own authorship in its lifetime? The results speak for themselves.
I have another theory, VCs freeride on the success and luck of other people's projects, which (sometimes) are so good and so profitable that they can even afford to have someone leeching off them. Just look at how many stories are there where the founders end up with zilch and regret ever taking VC money.
Any of the random guys on Twitter that are building and shipping stuff and making 4-5 figures on their side projects is worth more than a 1,000 Denpoks sharing their "wisdom" with you.
gfourfour
This is kind of a confusing perspective considering VCs are giving you money to pay for the operations of your business. Money is money no matter how stupid the giver is, their money won’t leech value from your company itself.
As for founders ending up with nothing, in those cases their investors ended up with much much less than they were hoping to too. Plus there’s plenty of other cases where founders get rich off a worthless company because of the beneficence of VCs.
knappe
>>Money is money no matter how stupid the giver is, their money won’t leech value from your company itself.
Yeah, this isn't true for a number of reasons.
1) The money you accept is given in trade for a percentage of the company and that means influence in the company. That influence almost always comes in the form of board seats which literally drive the direction of the company. I've seen many successful companies do some really stupid things because the investors wanted it that way and it actively hurt the business.
2) Certain investors come with a set of prestige. You're the n a forum which is known for just that.
Who you take money from certainly matters.
threeseed
> That influence almost always comes in the form of board seats
Most pre-seed and seed investors don't take board seats.
And at Series A and above they are putting in enough money where it seems fair enough.
rdlecler1
You don’t seem to understand basic economics. When you get on a bus and pay for your ticket, is the rest of the ride a free ride?
VCs are running a business too. Most VCs fail to return the capital to their LPs. That’s right, then spend 10 years of their life working with startups and have nothing at the end. They take RISK and they try to DERISK their investment by helping the portfolio company.
There’s also a LOT of stories where a VC invests a LOT of money only for the company to get recapped. The founders are given (some say rewarded) with new equity with the VC is wiped out. In many cases a founder will exit handsomely and the early VCs who came in end up with nothing. That’s the risk.
VC is simple but it’s not easy.
CPLX
> then spend 10 years of their life working with startups and have nothing at the end
How do they avoid starving to death after the first few days?
kevindamm
I imagine they spend money to consume food... after which, both food and money are gone.
CPLX
What money? I thought there was no reason to be a VC?
Or do they get paid? Is it a lot?
whitten
Yes. There is a lot of money to be made in VC. Look at "exit strategy" for more info.
stuffinmyhand
> Airchat is an app that lets you chat with anyone, anytime, anywhere. You can share photos, videos, and personal info with other users, but data is not encrypted and may be shared with third parties.
If this isn't gonna fail dramatically, I'm eating my hat
fakedang
Isn't that just WhatsApp or Facebook Messenger or Telegram or Snapchat or Discord but worse?
Lewton
> a single failure in a startup doesn’t make someone an idiot
Depends on the failure
rmbyrro
> No one gives away 20% of a company for advice. He gives them capital. Hopefully connections. And founders can take or leave the advice.
You could have just said: dumb founders want dumb money.
But... not all founders are dumb.
simonebrunozzi
Caution. You might end up like the Dropbox guy... [0]
ldjkfkdsjnv
If the advice was a slam dunk they would just start the company. There are too many factors for it to be useful, and they know that. Theres too much nuance
nl
> just released a kind of crappy messaging app that flopped.
I don't think releasing a messaging app that flops is bad? If getting a messaging app to succeed was easy then there would be more successes at it.
IncreasePosts
Hell, google has released about 30 and 33 have failed
hobobaggins
I just re-read your post and caught it - thank you, made my evening!
drewcoo
> I don't think releasing a messaging app that flops is bad?
For an exec, it's a "learning experience." Most startups fail. Take the VC cash, fail, and "learn" on their dime.
For any employee, it's s short stint to list on a resume that will make them less attractive to recruiters for the rest of their careers. "Why were you only at FooBarCorp for Baz months?" (Oh, wonderful - how do I explain without throwing anyone under the bus?)
nl
> For any employee, it's s short stint to list on a resume that will make them less attractive to recruiters for the rest of their careers.
If you can't make the story about working on Navel's messaging app a win for your career then your resume is probably going to have other problems.
langsoul-com
The entire point of a vc is to fund many and hope a success works out. Read on what Paul Graham said about ycomb, have shit tons of people dig holes to find treasure.
ilrwbwrkhv
Ya I do not know why people hold Naval up so high. What has he ever done?
arbuge
He cofounded AngelList for one...
morgante
Startups are incredibly hard.
If Airchat "flopped" it still got way more usage than most bootstrapped startups ever see.
moomoo11
Can you explain why? Are you suggesting he used the money on marketing instead of product?
I don’t know too many bootstrapped companies that are billion dollar plus but most well run bootstrapped companies can end up becoming successful small and mid level companies that make a decent money. At least from a revenue:num_employees, can’t be capital intensive so they have to be profitable from early on. Pls explain I’m interested to learn thanx
morgante
> Are you suggesting he used the money on marketing instead of product?
No, a lot of the marketing/hype just came from Naval and other influencers on Twitter.
> most well run bootstrapped companies can end up becoming successful small and mid level companies that make a decent money
"well run" is doing a lot of work here, but:
- Most bootstrapped companies fail, period.
- Most of them fail without anyone ever noticing they existed. It's very hard to break through the noise, and I know lots of companies/projects that failed without ever getting more than a handful of users.
moomoo11
I see. Thanks!
And how does VC help? Is it just the capital infusion or something else
jerrygenser
He co-founded angellist which seems to be at least a moderate success
MichaelZuo
I've seen this 'Naval' on Twitter, or now X, but there's hundreds of accounts with that shtick, catering to various groups, so it seems doubtful.
Are you sure he was 'the flagship SV investor, widely regarded...' among serious SV folks?
Or just among the peanut gallery?
alexeichemenda
>"It was very sad to call it quits because getting the funding to make those units was the only hurdle before making serious progress,” Temple said. “If they connected me with investors like they said, I could have made my invention, gotten efficacy and would be shipping units right now. I really do believe that."
It's unfortunate to see a founder believe that one accelerator would make or break their company. Typically an accelerator amplifies your existing trajectory - if you're a fast-growing company, you'll get more term sheets from investors than you know what to do with. If you're flat, they won't be attracting investors in any way. It's a founder's job to navigate this instead of relying on the accelerator to find $500k.
JumpCrisscross
> Typically an accelerator amplifies your existing trajectory
If only they had a word increasing velocity :)
CalRobert
Some accelerators are targeted towards people who do not yet have companies. I can't say anything for or against them but I briefly participated in (and chose to leave) Carbon13, which aims to match people with a cofounder.
ldjkfkdsjnv
A popular venture studio based out of NYC is like this. They take 60% of the equity from the start, and provide 1M in capital (which is decent amount). The narrative is that they provide significant guidance, follow on capital, etc. But in reality, none of their guidance or follow on capital comes through. For a first time founder its okay for a year, any longer and its really a financial disaster versus just working your way up the corporate ladder.
People have no idea how few startups really cash out, and how hard it is when you start from low equity percentages/have bad terms.
The horror stories usually dont arise until a startup is actually worth something and has a future. This is usually 2 years+ into the journey.
I think the typical founders doing this are actually just people that want to say they own a company at dinner parties.
CharlieDigital
> A popular venture studio based out of NYC is like this
presidentender
Fractal seems to have addressed the entire market they had identified. It doesn't appear that they're still recruiting founders.
I was in their pipeline and interviewing potential business cofounders, but chose to go the traditional venture route - it didn't work out, but I don't think I'd have succeeded at the Fractal business either.
ldjkfkdsjnv
They stopped getting funded bc of a mix of interest rates and company underperformance
paxys
At that point they are just hiring an employee. Once you get the $1M what incentive is there to continue to hustle while being a minority shareholder in your own company?
s1artibartfast
Yeah, what's the vc ROI here if they drop 1M and destroy each company. Do some of these go on to exit?
jmward01
So the question to the experts here is, what should someone look out for as a potential founder or employee (early or late)? I've so far seen 0 upside from the three startups I have worked at and I am not likely to think of options as an incentive in the future. Is this the new norm? Are the days of equity as compensation dead (even for founders)?
gnicholas
It’s long been the advice (at least on HN) to assume the value of options are 0 if you are employee. You have no ability to control dilution as a mere employee, so in almost all cases they will be worth nothing.
As a founder, you’re in control. Your equity is worth as much as you make it! But the more funding you need to take on, the more diluted you’ll be. Bootstrappers grow slower but remain in complete control, and can’t be screwed by rare events like this one (or more common dilutive events, which VCs may force on you).
hn_throwaway_99
What a psychopath.
To anyone who may be in this kind of situation, trust your instincts and leave. It will not get better. You will find other, better opportunities elsewhere. Best lesson I ever learned was from a high level exec that had just started at the company where I worked. He quit in 2 weeks. Impressively, he did it without drama or really even causing bad will - he just told the CEO it wasn't a match, and that the longer he stayed the more detrimental it would be to both himself and the company. I wish I had followed his lead - I was too worried about what it would look like to leave a company so soon after joining.
kayodelycaon
> I was too worried about what it would look like to leave a company so soon after joining.
You don’t have to put every job on your resume. :)
bbarn
Exactly. I worked for 4 months at a company and just put "Contractor - various" in that spot because I did not want the stigma of that company on my resume.
dylan604
I once worked at a place where an employee started their first day at the start of the shift. They mumbled their way through it to lunch where they never returned. That's the shortest I've personally seen. Absolutely not a c-suite role or anything management related though.
slyall
I had somebody sit near to me who wanted to leave at lunchtime but was convinced to stay on and left after the second day.
This was on the ads team. The job involved managing ads on our site (via google ads and some other providers). They had never done this sort of thing before[1] and were not up to being thrown in the deep end.
[1] I think they had done other sorts of advertising, just not for websites
dylan604
You say deep end, but any chance somebody had a crisis of consciousness with working with ad tech. Oh who am I kidding?
loa_in_
Crisis of conscience, I imagine
dylan604
amazing how modern spell check can let you down so badly.
vidarh
I've had that as well. I've always wondered how someone felt so out of place they wouldn't stick it out until the end of the day, or give it a few days.
dylan604
I always tried to think of it as they were interviewing for some other place they really wanted, but that place was taking a really long time to get back to them so they took something else before things got too dire financially. Then the other job finally reached out, so they said c'ya! I really have no idea the actual thought process though.
vidarh
I wouldn't be surprised at that, but I personally would still at least stay out the day. And sit down with someone and tell them.
I guess the chance is small people will remember them, but you never know where you'll come across someone again - I had someone (that I thankfully had better memories of) that had worked for me show apply for a totally different position at a different company where I was the hiring manager without knowing I worked there, for example...
WesleyJohnson
When I was younger, way before I got into tech, I started a job working at Whirlpool working on their assembly line to manufacturer dish washers. I really had no idea what I was in for, it was my first time in that kind of position. I left at lunch and never came back. I don't suffer from anxiety, but I was about to have a panic attack trying to keep up with the assembly line. Having exactly X amount of time to fasten clips, insert screws, attach hoses - all while the item you're working on is still moving? Maddening. Kudos to those who can do it.
electroly
In college, a friend and I got jobs at the university's call center making cold calls to alumni for donations. Awful job. He quit on his first day on the floor before finishing the shift. I stuck it out long enough to be fired for poor performance. I'm still not sure which of us did it right.
Paul-Craft
I think you're the winner here. The shortest I've seen is someone who left after their first day.
swader999
I usually stay long enough to get the company mug.
datascienced
Execs can have bigger voids due to gardening leave, non competes so it looks OK. But honestly because you can (in theory) lie on your CV it ain’t worth worrying about. So the scenario where you die because you run out of money and need a job because of a gap can be remediated that way. Change the dates or something.
sidewndr46
is this 'gardening leave' some british thing?
zh3
Yes, means you're still paid by the company but have essentially no duties. One way of making their inside knowledge somewhat stale before they officially leave.
aitchnyu
I'm trying to normalize this to my circle and strangers in India, where getting let go is a huge shame. I joined a company and my boss wanted me to be a human copilot, given a task and left for a few hours before getting interrupted. I copy pasted 500 line scripts in Lambda web editor, released certain versions for dev/prod, complained about sql injection and variables named data which overwrite each other depending on state and more crap.
paulryanrogers
What was the truth? Really just bad fits or something more sinister?
hn_throwaway_99
Not really something "sinister", but there was a level of chaos/shit-show that was orders of magnitude bigger than I had seen before, and I've worked for startups my whole career.
kcartlidge
Years ago I took a dev role at a very well known UK organisation, a prestigious brand supposedly good for the career. Their systems turned out to be smoke and mirrors of the most braindead kind. One and a half days in I'd seen enough and I quit. If you know, you know.
lmm
This kind of hinting is worse than useless. "If you know, you know" is obnoxious. If you mean Autonomy you should say so, and if you don't then your post is just misleading and confusing.
prawn
I assumed they were suggesting that they knew that it would be best to leave the company and didn't hang around. e.g., "If you know [hanging around will be a waste of time], you know [enough that you should leave]."
lmm
Your generosity does you credit, but no, it's a set phrase.
bomewish
Did you tell them what was wrong and how it should be fixed (in general terms)? Or I'm guessing your sense was, that would be a complete waste of time because the organization is so dysfunctional that if they _wanted_ to know, they could have figured it out?
Seems that raw pragmatism/self-preservation clashes with conscientiousness in some cases like this.
blueboo
the stupendous risk taken on by founders confounds instincts, and we're already filtering to folks who have resorted to taking money from third- or fourth-tier options
TimJRobinson
I don't understand how they lost their startup though? Doesn't the accelerator only take a small percent?
pnw
I guess the argument is that a $250k warrant sitting in bankruptcy court is a potential liability that would turn off other investors. It's not something I've personally seen, but it doesn't really seem insurmountable for a hot startup. Losing a cofounder is a much more common and potentially painful problem.
The CEO's post on LinkedIn made it seem like they found it tough to get funding in general.
atherton33
"Startups also granted Newchip the right to buy $250,000 worth of shares in the company at a later date, but at their current valuation"
jojobas
So the company was essentially signed away even before the bankruptcy.
atherton33
Yup. The bankruptcy just transferred the right to exploit it from the mildly incompetent to expertly ruthless.
behringer
I prefer the term scam artist over "expertly ruthless"
morgante
I don't think the final buyers are scam artists. They're mercenary, but not deceiving anyone.
The scam artists are definitely the people preying on entrepreneurs' dreams to sell a worthless accelerator membership.
irjustin
Yeah this is a pretty bad and far far far from founder friendly.
Joel_Mckay
Rule #14: "Never outsource economic control structures, or one may end up indentured"
Sometimes one needs to admit they were conned, and start over...
When people start out, no one tells them there is an ecosystem of legal-cons that target vulnerable small firms. Even this forum has users the constantly spam people with various funding scams.
My condolences, some lessons can take a year or two to recover... =3
Terr_
That reminds me of a book quote, about a semaphore transmission-line company as a kind of fantasy-version analogy for modern telecoms.
> "[My father] was chairman of the original Grand Trunk Company. The clacks was his vision. Hell, he designed half of the mechanisms in the towers. And he got together with a group of other engineers, all serious men with slide rules, and they borrowed money and mortgaged their houses and built a local system and poured the money back in and started building the Trunk. There was a lot of money coming in; every city wanted to be in on it, everyone was going to be rich. [...]
> Everything was going fine and suddenly he got this letter and there were meetings and they said he was lucky not to go to prison for, oh, I don't know, something complicated and legal. But the clacks was still making huge amounts. Can you understand that? Reacher Gilt and his gang acted friendly, oh yes, but they were buying up the mortgages and controlling banks and moving numbers around and they pulled the Grand Trunk out from under us like thieves. All they want to do is make money. They don't care about the Trunk. They'll run it into the ground and make more money by selling it."
-- Going Postal by Terry Pratchett
Joel_Mckay
I wish the mistakes I've seen over the years were fictional, as even the people I found disagreeable still deserved better treatment.
Any CEO worth anything owns their mistakes, adapts, and mitigates future issues.
Good luck out there =3
LocalH
Modern capitalism in a nutshell.
grensley
Anybody else nodding along like...
"mhm mhm Austin...makes sense..."
"I wonder when the Florida scams are gonna start hitting?"
replwoacause
I’m curious to know what you mean by this. Does Austin have a reputation for this kind of thing?
sangnoir
Austin and Miami were supposed to be the new tech start-up hotspots after the great COVID WFH migration. The zeitgeist was the SF Bay area was played out for a multitude of reasons the departees were only too happy to blog about. Austin and Miami also have a bunch of investors without a background in tech - in all, lot's of new players in a high-growth area make it a target-rich environment for those lacking scruples.
grensley
Rich people start hyping these places
Eager eyed entrepreneurs follow
And the sharks are just waiting
mullingitover
> Ryan had asked the leaders of each department to read a book on how to help college volunteers be more passionate about volunteering, recalled one person who attended the meeting. Ryan asked two of the company’s leaders to lead the group in a discussion of the book. But many were confused by it and didn’t see how it applied to Newchip’s business.
> “They were struggling with it. Andrew kept jumping in and interrupting them, and directly challenging them.” And finally, recalled the source, Ryan said, “This was a test for individuals that I’ve asked to do this today. I was going to fire one of you, based on whoever did the worst job.”
> He then singled out one person, told the room the person was fired, and, this person recalled, Ryan then said, “I do stuff sometimes to see who’s loyal and to see who is going to do what I tell them to do. This was a test and you failed. You’re out.’”
> After seeing Ryan fire this guy in front of the whole room, “I literally watched all of his direct reports sitting there saying to themselves, ‘I will never trust this man again,’” the source said.
The industry really needs to do a better job of rooting these personality types out and ensuring they don't ever end up in positions of trust or authority. Weird how the people who are the most obsessed with loyalty and respect from their staff are universally the least deserving of it.
rsynnott
> Ryan acknowledged to TechCrunch last year that his leadership style was based on “a military mindset.”
In the General Ripper mode, by the sound of it.
SoftTalker
> The court has since ordered the company to auction off the warrants it held in more than 1,000 of the startups that went through the accelerator program.
I probably don't understand something but how will this possibly benefit creditors? Who is going to pay anything for warrants in startups (most of which will fail, since that's what happens to most startups)?
SpicyLemonZest
The article indicates that buyers of an initial tranche have included startups buying back their own warrants (as the headline one unsuccessfully attempted to find funds for) and VCs who make similar portfolio bets routinely.
tschwimmer
I had the same question myself. The article notes that most of the first tranche of warrants went unpurchased which makes sense. However, the article also says that some of the portfolio went on to have an exit or raise later funding or something (the article mentions some company in Australia that seems to be a going concern, but they're claiming that the warrants are invalid). My take is that whoever is overseeing the portfolio has determined that the likely aggregate value of all the warrants > 0 so they are trying to sell them to recover something. In practice most of the warrants are indeed are worth 0 so it's actually not as a big of an issue as this is made out to be.
CPLX
What a fucking mess.
I got tons and tons of outreach from these guys for my company. It was pretty well written didn’t come off as overtly scammy unless you already know to run screaming from an accelerator or any other “investor” that wants you to give them money up front.
emodendroket
If you don't know that what are you doing trying to run a business?
jltsiren
Running a business is one of the most common things people do. The barrier of entry is lower than for most jobs. There are millions of entrepreneurs who are well below the average person in their ability to recognize and avoid scams, and scammers are well aware of that. And it doesn't help that businesses often don't have the same legal protections as employees and private individuals.
CPLX
Do you know if lawyers should be paid up front? How about a newly hired employee, do they get a deposit to ensure they will show up on the first day? How about a landlord for your first office? If you make things and sell them to a store does the store pay up front? Can they return them to you if they don’t sell them? Can you get a refund on a hotel if you don’t stay there? How about a flight you don’t take, or a rental car you never pick up?
And so on. The world is complicated. How did you learn all that stuff and when?
thayne
It seems like if you make a contract and a stock warrant is part of your side, and the other side doesn't keep their side of the deal (for example because they went bankrupt), then that warrant should be void, because the contract was breached.
keepamovin
The court has since ordered the company to auction off the warrants it held in more than 1,000 of the startups that went through the accelerator program.
Why should the startups be punished? I think in this case the interests of startup ecosystem should out do those of creditors. Is there no protection for that?? Seems nond to gut startups when an accelerator failed, agains the entire purpose.
Seems a great way to destroy economic value. Tho to be brutal a bag of startups is basically economic destruction anyway, on average as most of them fail...but I mean. In this case it's like precrime, they're killing them before they even have a chance. Not fair, not good!
Paul-Craft
I might be having a brain fart right now, but I'd just about swear I've read a similar story before. Can anybody back me up, or am I just mistaken?
datascienced
Would have been nice for the bankruptcy company (what is the term… administrator? receiver?) to try to sell the portfolio of investments as-is to another VC. This may have both kept the startups alive and got them more $ overall for creditors. Maybe this would have been more doable in 2020!
pedalpete
So is the technicality of a warrant vs a SAFE that lands these founders in this position? As a SAFE is an agreement for future equity, would it also be treated as a warrant in a bankruptcy?
Why would NewChip decide on this structure vs the more common?
LocalH
Perhaps Ryan thought he might make a windfall from any warrants that weren't purchased in bankruptcy.
"But startups’ objections were made in vain when the court overruled them. A bankruptcy court’s goal is to oversee the selling of assets to settle debts. If there is money left over, it’s paid to shareholders. Ryan is the majority shareholder."
adapteva
Yup, got an cold email from them. Marked it as spam and never heard from them again...
bawolff
I mean, maybe you shouldn't sell of the right to buy your company.
The accelerator sounds scummy, but at the same time i can't help but wonder wtf the owners of these companies were doing. Did they just not read the contract? If you own a company i think you have a lot of responsibility for the shitty business deals you make. Its not like we are talking about some senior citizen hoodwinked into signing their home away.
datascienced
Every contract has some crap in for what seems like unlikely scenarios. If you can’t negotiate it out it is either that or the highway. If these startups could get YC funding they probably would have. So for some it is accept a possible imperfect contract or back to employment. Employment itself being full of contracts with crap clauses as well as common law itself having crap. Show me the perfect contract!
bawolff
> If you can’t negotiate it out it is either that or the highway
That is generally how contracts work. You get something and you give something in return. Nothing comes free. If the deal was better then "the highway", you have no cause to complain when the other side comes to collect their part.
Especially for a sophisticated party like a company. Things are a little different for individuals like employees where the power imbalance is coercive. However when it comes to a company, as long as it wasn't outright fraud, i have very little sympathy that they are having buyers remorse over a bad deal.
theogravity
It sounds like Newchip had warrants on lots of companies - did all these companies pay $7500, or is this only for seed-stage startups that need to get access to an investor network?
ac50hz
> It charged startups between a few thousand dollars and $18,000 to $20,000 for its training programs
This was one of several red flags for me…
bitwize
> Newchip founder and CEO Andrew Ryan
Name checks out.
replwoacause
The guy in charge of this sounds like a real piece of work.
jwsteigerwalt
When is the auction? How can you bid?
binbag
Terrifying.
tyroneBray
[flagged]
_cs2017_
This article is absolute trash since it doesn't explain how the bankruptcy of the accelerator would change the amount of dilution the startups experience.
Taking the information in the article at face value, the startups paid the accelerator (partially) with warrants. Those warrants have a fixed exercise price; the courts cannot change that. Whether those warrants are exercised by the accelerator or by the creditors, the dilution will be exactly the same. This is not at all affected by whether creditors bought the warrants for penny on the dollar or for a billion dollars.
Maybe there's some reason why warrant owner matters. But the article makes no attempt to state or even hint at such a reason.
I wish there was a way to blacklist domains from showing up on my Hacker News feed so I don't have to keep reading this type of junk journalism.
hn_throwaway_99
Why the diatribe?
> Maybe there's some reason why warrant owner matters.
It's a well understood fact by anyone in the startup world that it does matter, because future investors or acquirers care deeply about the structure of your cap table. Furthermore, the article gives an explicit example of this:
> She had lined up a grant from a bank to help fund her offer, but it ultimately told her no because it was too risky for them to be involved with an unknown warrant holder on her cap table.
_cs2017_
So your point is that a good investor should agree to a buyout offer but the bad investor doesn't?
In other words, the original warrant holders (the accelerator) would have happily agreed to the founders buyout offer funded by the bank's grant? Why would they do that, if the whole point of an accelerator is to accumulate shares in the startups?
sroussey
That paragraph makes no sense.
A bank is offering her a grant?
And this grant was supposed to remove the warrant holder from the cap table, so why would they have a problem with that?
And having some unknown warrant holder is the reason to shut down?
I call BS.
rvba
What is the business model of an "AI smart-matching tool for humanitarian aid"?
Spunds like a word salad, or a weekend project for a developer that could be hosted for few bucks per month.
bbarnett
Read your comment and parent. The quote from the article doesn't explain why the warrant owner matters, and you suggest the cap table structure does, which makes sense.
However, the structure has nothing to do with ownership of parts of that structure. Why would warrant ownership matter?
llamaimperative
Because as an investor in a company, you don’t want that company’s founders constantly distracted by a piece of shit investor who has a massive stake in their company.
Pretty straightforward.
Investors can create tons of havoc, and “bought equity from a bargain bin outside of a bonfire” is probably as good a warning sign as any.
bbarnett
The size of the warrant is still the structure. In terms of investment, as the warrant is demonstratedly transferable, the investor ownership is always an unknown.
This still sounds like structure(size and control of a single warrant) rather than who. The real issue seems to be any large warrant, that is, the uncertainty in the structure.
> So she paid a $7,500 deposit and was all set to join Newchip when a founder friend told her to “never pay for introductions.”
Hopefully everyone knows this here, but if you paid for an introduction it's a negative signal: just cold email.
That being said, I'll make intros for only $6,500 and no warrants.