From accelerators to angels, the Hong Kong start‐up space becomes increasingly dynamic every day. Expertise, network, money, office space. With an increasing amount of choice, how do you – as a founder – think about your options? Here are a few thoughts:
1. Understand your needs. You know that realizing success is more than just vision, it is also about having a plan to achieve it. Your road map can change as you grow, but without one you will soon find yourself lost.
No one knows your business better than you. Direct your attention to resources that you know will help you. Avoid the alluring appeal of hope – in this case, hope that joining a program will validate your idea, show traction or provide some as‐yet‐unidentified benefit. That is what customers are for. It is OK to make a wrong choice, but make sure the choices you make are ones you can learn from (when they do not deliver the results you want).
2. What are the limits to what the program offers? It is easy to focus on the headline benefits – maybe a cash investment, office space or a vast network of advisors. Try to understand how those benefits fit with your longer term plan and what your position will be when the program benefits end. For example, if office space is appealing, consider how long the program commits to providing you the space (a clue when you may have to move again).
3. Who are the advisors? Understand if the mentors associated with an incubator or accelerator entrepreneurs themselves or folks with a day job dabbling in the start‐up space on the side. Looking for real commitment? Figure out to what extent advisors (even apart from the accelerator) invest in the companies they work with.
4. What do you have to give up (and when)? As with any business relationship you enter, understand as early as possible what you have to give to participate. If it is only your time, find out how much time is required (and what conditions apply when start‐ups drop out of the program). If your commitment increases during the program (you have to pay some amount or issue equity), identify key dates and make the most of your time with the program before then.
5. Talk with Alumni. Past participants in a program often will be your best resource. Do alumni continue to network among themselves and participate in accelerator events? If you are not finding alumni (or only past participants unwilling to speak), consider that successful programs typically benefit when their start‐ups promote the accelerator brand.
6. Measure Past Results. Verifiable data can be hard to come by for start‐ups, but successful programs will be able to describe measurable outcomes they have helped past participants achieve.
Help yourself when pitching for investment by keeping a few points in mind:
1. Manage the Process. It is your business, so own your fundraising process. Pick a schedule (it can change) and drive interested investors toward meeting your deadlines. Only you know how important those are (and only you can adjust your operations, if they need to move).
2. SAFE / KISSes (and other forms of investment). There are a number of types of investment you can use to raise funds (and even more forms of documents floating around for each), including straight or preferred equity, convertible debt, Keep it Simple Securities (KISS) from 500 Startups, and the Simple Agreement for Equity (SAFE) from Y Combinator. Most any of these can be made to work in most any situation. The key for you is to…
3. Understand Your Documents. Forcing yourself to read legal documents can be agonizing, but the process is made more painful when you do not understand the underlying issues (or why they are important). On this front, the best advice I can give to founders is to read the book ‐ Venture Deals: Be Smarter Than Your Lawyer (Feld and Mendelson). It is a great primer on deal terms, written specifically for non‐lawyer founders to understand (and negotiate) key issues.
4. Do You Need an Attorney? A common question, particularly for early stage startups. If your startup ultimately succeeds, you absolutely will need the help of qualified legal counsel. At the same time, if your startup fails, that failure often will not be because of how you managed legal issues.
Case in point, I was recently given an investment document by a startup that would have allowed me to convert to preferred shares at a price equal to 15% of the price in the next round of qualified financing (rather than at a 15% discount, as the founder intended). If this particular startup never gains meaningful traction, the conversion discount likely will be irrelevant. However, if the startup catches fire (which I hope is the case), the founder (not to mention later investors) would care greatly that earlier investment documents reflect the expected discount at conversion.