Let's mug a startup founder!

You know what I’m tired of? Rich guys launching ‘startup accelerators’ so they can rip off new startup founders.

Screengrab of the Oxygen Accelerator site

Mark Hales and his Oxygen Accelerator concept are just another example. Here’s the deal: They offer you a £20,000 loan (not an investment – you have to pay the £20,000 loan back) in exchange for 6% of your company.

The reason why I know this is a terrible deal is because we just got a bank loan for £100,000 and we gave up exactly zero equity. The government in the UK is even incentivizing banks to loan by guaranteeing 70% of loans.

We boot-strapped the launch of Think Vitamin Membership with cash from our events and then used the bank loan to provide us with the working capital we needed to hit cash-flow break-even.

There are other options. Don’t believe all the hype you hear. Just because they have a decently designed site and a bunch of mentors, doesn’t mean you should take their money.

Not all accelerators are equal

The Oxygen Accelerator site compares their program with Y CombinatorTechStars and Seedcamp, but there’s a fundamental difference. YC, TechStars and Seedcamp invest in companies, not give them loans. The other difference is they offer mentors who have built successful web companies. The only well-known mentor for Oxygen Accelerator is Mike Butcher, and he’s a tech journalist.

I’m sure Mark has honest intentions, but that doesn’t change the facts. This is a rip off for startup founders who don’t know any better.

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Comments

84 comments on “Let's mug a startup founder!

    • From their FAQ:

      Q: Do I have to pay back the pre-seed funding?
      A: Yes. (…)

      So it’s not a funding, it’s a loan. What a rip-off.

  1. I have no problem with the concept, part of running something is reading the small print, this may work out for some people. For other’s it might not. I would rather there be an option to do this, no matter how unpalatable it may be.

    What I don’t like about this is how the equity isn’t negotiable and how you only find out its a loan after some digging in the FAQ.

    I also have to question the sense of it.. if the start up is successful surely 6% of the profit the company makes OR the sale of that 6% in the future would more than pay back the loan. Paying back the loan on top of this seems silly.

    • That’s the problem – you have to really read the small-print to understand how bad a deal it is. They’re dressing it up as some sort of campaign to save startups in the UK. Grrr.

        • ..got cut off – meant to say not your average bank manager. It’s so hard to get loans nowadays without putting your assets as a safety net, i.e. your home. What if you business fails due to unforeseen circumstances? A bank will take it away. But this programme seems to be investing in building companies according to website nad Mike’s original release. I wish there was something like this for arty typees like me who has a great idea but has NO IDEA where to begin. This programme seems like it can give me the foundation I’d need to be able to secur investment via valid, proven and vouched for business plans. And they just launched, so new mentors are still coming. I say, give then a go – what have you got to lose?

  2. Great Post – It’s yet another way to take advantage of the start up founder. We’ve personally had some real issues with investment / ‘angels’ offering us help with our startup. Sadly each time we’ve been promised something the offer has been vastly different but cleverly packaged up. In the end we’ve bootstrapped ourselves via friends and family.

    This is clearly trying to jump on the Y Combinator bandwagon, with the added extra of ripping you off :-(

  3. Hi Ryan,

    This is a great post for new startups. Especially web based startups which don’t cost that much to startup. My friend and I started a entertainment website for our province and we had a great response. People were looking to invest into our company even before the page launched. We had significant amounts of money offered to us but it didn’t make sense to take the money when the investors wanted all their money back in return plus a % of the company. Instead it made more sense to save our money and use it when we needed it. We haven’t paid ourselves a cent yet, but it’s still early and we are paying off our Virtual Dedicated Server and other costs. Why be accountable to strangers when you can work hard and keep complete ownership of your startup.

    Finally, like you said, it makes more sense to get a bank loan :)

  4. Great post Ryan – lots of these crap “loans” floating around – a good plan with “some” cash flow and we’d agree banks are receptive and less aggressive (zero equity release) – a key item is building a good rapport, and relationship with your bank, even if it is a fledgling start up some consideration should be given to banks that may have had a relationship with one of the founders on a personal level in the past.

    I think like most here – what really repulses me is how it’s packaged and messaged – funding / support.

  5. I fail to see why anyone would give up a chunk of their company for a loan. That’s insane. £20,000 isn’t a huge sum of money for a bank to loan you. If you have a solid business plan, and some kind of track record in terms of what you are doing that should be achievable. If the bank won’t give you money, then it may be that you need to look at that business plan again.

    I’m a big fan of bootstrapping anyway. We bootstrapped
    @grabaperch:twitter
    through profits from the services side of the business. It certainly focuses the mind when you have no big chunk of money to work through, and meant we were making profits from Perch within the first month. I’ve heard a few people saying that to be successful you have to single-mindedly work on your product. Not so. It might take you a little longer if you have to find the money via working another job, or on some other part of your business, however it is worth it if you can retain 100% ownership of your product.

    I’d love to see more real, sane, help for web start-ups in the UK. Not necessarily linked to funding, I think a lot of the time what people need isn’t the money, but help to write business plans that banks will be happy with, help working out what is important to spend money on and what isn’t, and just some support. Having someone as a sounding board who doesn’t have a stake in the business is really valuable and would help people avoid deals that will ultimately be a bad thing.

    • >£20,000 isn’t a huge sum of money for a bank to loan you. If you have a
      solid business plan, and some kind of track record in terms of what you
      are doing that should be achievable.

      I am not sure it’s as simple as you make it out to and I am not aware of any startup that has achieved this. Are you?

      • Yes – banks do give out loans. If they believe your business can pay back the money. If you have no plan to turn a profit, then why go into business in the first place?

        • Having a plan is one thing, fullfilling it is another. My understanding is that banks want to see a solid trading history and assets rather than a just a plan. This would exclude most startups.

          • The bank needs to see how you are going to make money. This is fair enough really! I think a lot of the time, what people need is help to get their plans into a state where they can approach a bank, as the banks do tend to want fairly traditional business plans.

            If you have no idea where your cash is coming from, or the aim is to get bought, then you may have trouble. I’m pretty old fashioned though (and lived through the dot com era!!) and think that any business should have a solid plan for making money from whatever it is doing – not holding out for rounds of investment and an ultimate sale. If that happens eventually, and is what you want, then great – but figure out how to make money first off.

      • We had to go to three different banks to get our loan. The bank we currently work with (Natwest) wouldn’t do it. So I’m not saying it’s easy, or that the first bank you ask will say yes, but it’s definitely possible.

  6. Someone should throw Founder Institute in here as well along the lines of Oxygen Accelerator. They don’t give loans but they do charge you X for joining. Then take a percentage of your Series A if you end up successfully raising. This is all on top of their equity pool.

    • Quick fact check…

      It looks like there’s a small application fee (often waivered), a 900 euro/dollar course fee, and then two optional fees:

      – 3.5% in warrants go to a bonus equity pool

      (shared with the institute, mentors and other founders)

      – $4,500 tutition fee on any 3rd party investment that are > $50,000 (not explicit but appears to go straight to the institute)

      http://www.founderinstitute.com/faq

      Not saying whether this is good or bad… just curious about getting to the facts.

    • Haven’t had a look at FI before. As you commented anonymously, I presume you have inside knowledge or don’t want to speak out publicly.

  7. Sounds like their audience might be people who haven’t done the foot work and research to see what is available to them. Getting a loan, especially now can prove difficult, but certainly not impossible. Very interesting.

  8. Sounds like their audience might be people who haven’t done the foot work and research to see what is available to them. Getting a loan, especially now can prove difficult, but certainly not impossible. Very interesting.

  9. Whilst I agree it’s not some heroic “save UK startups” initiative, it is a different funding option. From what I read, the backer was involved in the pre-seed incubator Springboard, so maybe he saw a gap in the market startups are interested in.

    It also should mean they can reach more startups, as the investor gets their money off the table at an earlier stage in which to put back into the programme.

    However, I believe it’s targeting a section of the market which shouldn’t exist. They’re aiming to get the startups who haven’t pinned down a revenue model, and who can’t secure traditional angel/seed funding. I think if you lack both of those and can’t get into a traditional incubator, then you might have to look again at the business.

      • We’ve all head horror stories about VCs screwing startups with various option-pool/participating preferred clauses though. I don’t think it’s as black-and-white as “this is bad” or “this is good”.

        From the looks of it as well, you pay back the £20k, with (from first glances) no interest on top – so the 6% looks to be lieu of interest and regular repayments. Whether that’s good/bad is up to the entrepreneur, but it’s an option.

  10. So you are saying spec work only works in design? :)

    It is really tough to see the accelerator model used for not so quite ethical purposes. There are so many good ones out there, perhaps posts like these will help steer people to the ones that give back and create a stronger community.

  11. We need proper incubators with track records, proven mentors and genuine teaching. This should be all done in the spirit of fostering the community not as a way to capture equity just on the off chance they “make it”.

    Most startups don’t need anything but a roof, some food, and a good internet connection. That’s worth, at most 2% of any idea that has a solid business plan.

    Investment houses & the goverment should be encouraging me to go in to business, to create wealth and create jobs. Help me get started and when I need investment, you can have first refusal, and I’ll want to work with you because you’ve proven to me that you’re not out to take all my work, replace me as CEO and dilute all my equity. It goes both ways.

    Absolutely you can go to a bank but there not really lending, and you’d better have either a house or a track record. If the UK is to be innovative, disruptive and succesful we need to foster, encourage and educate startups not take a slice of their pie for lessons on “what makes a good pitch…” I’ve hacker news for that. :D

    • Great comment Benjamin. Fully agree with this part …

      “Most startups don’t need anything but a roof, some food, and a good internet connection. That’s worth, at most 2% of any idea that has a solid business plan.”

    • Don’t agree. It takes faith in a business plan and the person to invest in the project. Without a solid business plan, and many do not know HOW to write one and pull it together, how can a start-up succeed? Moreover, how can a startup get the network established in its industry with just ‘an idea’? That is not a ‘business’. It’s a dream. A business is getting the support, funding and network to propel it. I reckon this is ideal for people who NEED help WITHOUT having to put their home at risk – it seems extreme, but giving up 6% isn’t all bad with the suffix that it’s paid back IF you make a profit Seems OK to me. Hales has explained it briefly. It just has to be right for the individual and that is down to choice.

  12. I was told to apply for this if I didn’t get in to this YC round and so I’m quite glad that we did get end up getting in after reading what Oxygen offers compared to Y Combinator! Though, good luck to Oxygen nonetheless. Great post :)

  13. I like the fact that this post is currently number one on http://news.ycombinator.com/, which they have the latest posts from in the footer of their homepage, therefore displaying a link to this blog post on their own site!

  14. Oxygen Accelerator
    sucks! No wonder the US is creating great internet companies and we in the UK are not. Is Y combinator coming to the UK anytime soon lol?

    Thanks for a great post Ryan ;-)

  15. Ryan,

    While I applaud the stance I also applaud almost anything that promotes a startup culture. I think that having initiatives such as the one you posted directly, in place, can potentially created a catalyst for entrepreneurs. Sure, this may be a very entry-level approach to startups and entrepreneurship as a whole, but many of these founders and co-founders will later go on to do bigger and better things later in life; learning from the experience and becoming a “startup junkie”.

    I also believe that if the incubator is providing enough resources beyond the capital, such as mentoring programs, invaluable connections and partnership possibilities that you would never be able to reach as an early stage entrepreneur … the size of the loan, investment, valuation, equity etc.. doesn’t matter.

    • I agree that it’s great to get people talking about startups here in the UK, but I think this is a terrible example. If I had more time right now, I’d start some Meetups where we could do mentoring and training for startups. Maybe I’m part of the problem because I’m not doing more to support new startups :/

  16. Ryan,

    While I applaud the stance I also applaud almost anything that promotes a startup culture. I think that having initiatives such as the one you posted directly, in place, can potentially created a catalyst for entrepreneurs. Sure, this may be a very entry-level approach to startups and entrepreneurship as a whole, but many of these founders and co-founders will later go on to do bigger and better things later in life; learning from the experience and becoming a “startup junkie”.

    I also believe that if the incubator is providing enough resources beyond the capital, such as mentoring programs, invaluable connections and partnership possibilities that you would never be able to reach as an early stage entrepreneur … the size of the loan, investment, valuation, equity etc.. doesn’t matter.

  17. Thanks for the article.

    …I agree with Benjamin below.He is spot on (or as we say in Minnesota ‘probably right’). :)

  18. Geez, it’s not that big of a deal. It’s just a way for companies that go on to make big raises to give back to their “parents”. Nothing to get agro over.

  19. Geez, it’s not that big of a deal. It’s just a way for companies that go on to make big raises to give back to their “parents”. Nothing to get agro over.

  20. To support your comment about the mentors.

    One of the mentors is in fact the CEO of the company I rent my apartment from. When I saw her on the list I instantly laughed at the fact she would have anything to do with mentoring “startups” where housing/offices aren’t really a big problem.

    If she isn’t there to help with putting a roof over their heads then she must be there to provide business advice but surely how you’d run a leasing agent to running a web startup are quite dramatically different?

  21. Nice post Ryan.

    Don’t know why anyone would do this program when you have Seedcamp, YC and other such programs around the world. Even though we didn’t get Seedcamp funding being a finalist gave us a great network and led us to potential investors.

    One question on the EFG, which bank ended up giving it to you? We’re with HSBC and the business plan has a 200K investment later in the year and they wouldn’t give us a loan until we explicitly said who the investor was, which if I knew I wouldn’t be looking for a loan. I thought Natwest was pretty good for giving out the EFG but from the sounds of it you were dinged even with a solid plan.

  22. Hi – I’m Mark Hales from Oxygen Accelerator. I just wanted to say we’re following all the discussions on here and it’s helpful to hear your opinions and advice based on your experiences. I just wanted to make a couple of points to clarify a few things. We intend to provide a fuller response once we’ve spent some time considering all the feedback.
    First of all the loan we are talking about is a ‘soft’ loan to the businesses taking part – with no personal guarantees and will be interest free.
    As part of the application process we’ll sit down with each team to understand their funding needs and will only ask for the loan to be repaid once / if this level of funding or more has been achieved, or they reach a level of profitability to support loan repayments
    This will not be a complicated loan agreement, we only want to have the money back to reinvest in the next round of entrepreneurs when its right for the business, i.e., there wont be any clever call options. Teams will be given full sight of this and we will encourage them to get advice before they sign up to anything.

    • As I said over at HN …

      Mark – the trouble with your accelerator is this: It’s a deal that not even you would’ve taken when you first started. To promote it as “Breathing life into tech startups” is irresponsible.

      • I don’t think it is at all irresponsible – he is offering a soft loan. He probably caters to a market of people who are looking for options after they get rejected from more popular incubators like YC. Keep in mind, YC once offered $6-18k in return for 2-10 percent of the applicant(s) company. If anyone is irresponsible, it is people that recommend bootstrapping a company off of credit cards, which often charge 10-20 percent interest – this is a relatively good deal in comparison.

  23. Thanks for having the balls to say this publicly and not keeping quiet because it would be ‘controversial’. I’m sure you’ll get some stones thrown your way but the voice of reason is often criticised. You have my respect sir.

  24. Thanks for having the balls to say this publicly and not keeping quiet because it would be ‘controversial’. I’m sure you’ll get some stones thrown your way but the voice of reason is often criticised. You have my respect sir.

  25. It
    looks like we have raised some controversy and questions around the
    funding model we have chosen for Oxygen Accelerator. So this blog
    post is in response to some of the questions/points raised:

    Q. We could just
    go get a bank loan and not have to give up any equity?

    A.
    It is true there are alternative sources of funding including bank
    loans through the government supported Small Firms Loan Guarantee
    scheme; this loan is only available to companies that can prove
    the ability to repay it, however these loans charge a facility
    fee, are interest bearing, have fixed payment terms, and the
    founders are required to give personal guarantees. The 70% guarantee
    made to banks by the government only kicks in once the personal
    guarantees from the founders have been exhausted. Our loan is
    interest free, has no fixed term, is secured only against the
    business, does not have any personal guarantees and is only repayable
    if and when the business can afford it without jeopardy to the
    business. If the business fails (which inevitably some will) the loan
    is written off. It is made at a time when in most cases the founders
    have an idea; they may not have incorporated, may not have a business
    plan or even a well thought out strategy.

    Lots
    of people have understood what we are offering – here is a comment on
    HN from ‘lionhearted’ which sums it up well.

    “I
    could see circumstances that I’d take this deal in a heartbeat -
    starting a brand new company with 94% equity, $33k cash in the bank,
    and a $33k loan with very flexible repayment terms seems like it’d
    have a much higher chance of success than starting with 100% equity,
    $0 cash, and $0 debt.”

    Q.
    Isn’t 6% equity for a 20K loan a ridiculous interest rate?

    A.
    The 6% of equity is not directly related to the £20k. The 6% equity
    is in return for the full programme, including aftercare. We are
    enabling companies to reach an entirely new level, through the
    provision of facilities, mentor guidance, accommodation, investors,
    an evergreen loan and office space for 6-months – plus we will keep
    a vested interest, providing an open-door policy to the team in
    Birmingham.

    An
    important point is that it’s a loan of UP to £20k – purely to
    enable the teams to get onto and through the programme. It is not
    seen as an investment to last them post-bootcamp, but allows them to
    reach ‘investor day’. They don’t have to take this loan if they
    don’t require it.

    Q.
    Why wouldn’t I just bootstrap rather than taking a loan?

    A.
    Bootstrapping is a great way for a startup to get off the ground, but
    often requires the founders to take on debt via credit cards or loans
    from friends and family which also have to be paid back. The
    difference here is we are offering a programme (facilities, mentor
    guidance, accommodation, investors and office space for 6-months)
    that includes an interest free loan to your business with no personal
    guarantees.

    Here
    is a HN comment from tptacek

    “Loans
    and lines of credit often don’t require equity. They frequently do
    require you to put up your house. You cannot pull an interest-free
    loan, backed only by your corporation, off a tree. It is a real
    offering. It is not reasonable to call it a “mugging”.”

    Q.
    I’m having a hard time understanding why they want the money back if
    they’re taking so much equity.

    A.
    Typically it takes 3 years + to get a return on an equity deal so if
    you are running an accelerator at least once a year you need to be
    able to fund it for at least 3 years before getting (3 * £200k =
    £600k + running costs = £1million) any return. By using an
    evergreen loan model we stand a chance of returning some (not all)
    money to the programme quicker than 3 years and allowing us to
    sustain the programme and support more entrepreneurs which has to be
    a good thing for the entire community.

    Q.
    If we make it big it’ll be 6% of a much larger amount (think
    $10,000,000+). $600,000 is a little more than the interest you’d pay
    on a $33,000 loan at 6%?

    A.
    The type of high-growth tech businesses we are looking to support on
    the programme will need additional rounds of funding and therefore
    our 6% equity will be significantly diluted. It would be great to
    think that all businesses will exit for $10million + but the reality
    is very few will so the return is unlikely to be anything like that.

    Q.
    Not all accelerators are equal

    A.
    I agree and not all startups are equal and what works for one doesn’t
    always work for another. I don’t seek to compete with Tech Stars,
    Seedcamp, Y combinator or any other scheme. I applaud their efforts
    in what they do for aspiring entrepreneurs; any reference I make to
    them is around the fact that we are offering a 13-week bootcamp that
    is mentor intensive in order to assist companies in raising their
    next round of funding.

    Q.
    This is a rip off for startup founders who don’t know any better.

    A.
    I think this does the tech community a dis-service. The vast majority
    have a very good understanding of these matters and are more than
    capable of weighing up what is the best programme for their startup.
    The fact that this is not an identical offering to other accelerators
    does not make it a rip off, it makes it different.

    Q.
    The loan information is buried in the FAQ’s

    A.
    The FAQ’s are hardly buried they are very clearly displayed on the
    Accelerator page. All the accelerator sites use the FAQ’s to
    provide the detail around their programmes. However, to ensure its
    very clear we have added the words “soft loan” next to the
    £20k on the home page.

    Q
    Why don’t we just get Angel or VC investment?

    A.
    There are a lucky few startups that turn up and pitch an idea to an
    Angel or VC and get funding but there are more that are not that
    lucky and have to actually prove traction, have a credible business
    plan or be revenue generating. What accelerator programmes like ours
    do is help your startup get to that stage quickly (13-weeks), which
    means you are much more likely to then find the investment you need
    to grow the business to the next stage. Of course this is not the
    only way to become investment-ready; there are plenty of others and
    only you can make the best choice for your business.

    Q.
    There are lots of accelerators why do we need one that offers loans

    A.
    My experience is that there aren’t enough accelerators to support
    startups and many talented individuals with great ideas fail to get
    the support (financial and non-financial) to get their ideas off
    the ground. My programme is aimed to support those people that see
    the value of the programme; if they need neither the money or the
    support because they have all the skills and connections to go it
    alone then clearly they wouldn’t benefit from the programme. The fact
    that hundreds of people applying to Tech stars, Y Combinator and
    other accelerators aren’t successful suggests there is a need for
    more support to be provided (YC probably got 1000+ applications and
    selected 60 teams, so that’s 940 teams who will not receive support
    this year alone).

    The
    rationale for it being an evergreen loan is so that the ones that do
    repay the loan, at a time when arguably they no longer need it, is to
    allow other entrepreneurs the same opportunity for the long term.
    Other schemes such as Difference Engine were funded by regional grant
    type funding which, as government cash ran out, were closed and
    therefore no longer open to budding entrepreneurs, despite the fact
    that many of the companies that benefited from the programme have
    gone on to successfully raise further rounds of funding with the
    assistance of the programme and arguably don’t need the original
    funding anymore. Our aim is to make the programme sustainable and not
    at the whim of investor sentiment. The evergreen loan model in theory
    returns money back to the programme quicker than an equity-only model
    and hence allows us to support more entrepreneurs.

  26. Absolutely massive respect to Ryan for calling this out, as he has a high profile in the U.K tech community and thus can bring more attention to this issue. I’m an ‘internet entrepreneur’ from Birmingham and follow all the U.S tech guys, sites and people like Ryan etc. This ‘soft loan’ concept is a joke. If the investor has faith in the business then £20,000 should be invested in full, no strings attached. As an entrepreneur if I was to go through a vetting process and have a long term relationship with an investor, I’d want to see them making a more cast iron commitment. If you think that you would easily give away 6% for the life time of your business, for a loan of £20,000,and 3 months at Aston Science Park and really believe that your business will make it in the long run, you are selling yourself seriously short.
    Also as Ryan said, you have to have mentors that have been there and done it, not people like Mike Butcher who is a journalist and is good at reporting the news, trends etc. but can’t impart any business advice and should be on no panels to give advice to startups, but only as a moderator. The fact that the incubator is being run by Mr Jenner is another joke. Please publicly state his business track record on the site, rather then a few obscure lines such as “previous successes at multiple startups etc”. Unless you have Y combinator, techstars and to a large extent seedcamp quality mentors it is not worth giving up 6% for such advice. Just watch a recent interview with David Tisch who is running Tech Stars New York who comes from a wealthy background and was considering setting up his own incubator programme. He realised and stated it wasn’t a matter of money but there was a huge array or partnerships, mentors and other complexity to running this, hence the reason he joined up with TechStars. They even said that the $18,000 dollars (i think thats the right amount) is invested to add a monetary value so the startup doesn’t feel like they are trading equity just for advice. Also, they are providing partnerships into the likes of bloomberg etc. and other big companies in NewYork, what is a nursing home businessman going to provide to a tech startup. With the kind of guys that the likes of techstars, Y combinator bring to the table you would probably give equity just for the advice, let alone the money. However definitely not in this case.In this day and age on the internet there is so much killer information if you are hungry to find it and actually take the time to digest and apply it, where you can get a 50% solid base level of knowledge by watching shows like mixergy, thisweekinstartups, venturecapital, reading posts from people like Mark Cuban, Mark Suster, Chris Dixon, watching Seedcamp videos from Ryan, the Message Labs guys. Then if you need that last 20-30% of direct advice on your business, then hustle and contact these people directly or work hard to get in front of them for a cup of coffee and advice, which tends to be the best indirect path towards investment. I know we have a smaller pool of high calibre experienced and successful tech related entrepreneurs/mentors in the U.K then the states however you can seek them out but don’t accept second rate substitutes for the sake of it. Or go to a few School for Startups events run by Doug Richard which cost a few hundred pounds, not 6%.None of these first generation of entrepreneurs had this wealth of knowledge online to access, or programmes to hand hold them, or waited for the government to give them the green light. Can we also please can we also stop making out that having an office room and an internet connection is a big plus in these incubators, what happened to the 3 guys in a garage and broadband to get their business of the ground, initial traction etc.

  27. Absolutely massive respect to Ryan for calling this out, as he has a high profile in the U.K tech community and thus can bring more attention to this issue. I’m an ‘internet entrepreneur’ from Birmingham and follow all the U.S tech guys, sites and people like Ryan etc. This ‘soft loan’ concept is a joke. If the investor has faith in the business then £20,000 should be invested in full, no strings attached. As an entrepreneur if I was to go through a vetting process and have a long term relationship with an investor, I’d want to see them making a more cast iron commitment. If you think that you would easily give away 6% for the life time of your business, for a loan of £20,000,and 3 months at Aston Science Park and really believe that your business will make it in the long run, you are selling yourself seriously short.
    Also as Ryan said, you have to have mentors that have been there and done it, not people like Mike Butcher who is a journalist and is good at reporting the news, trends etc. but can’t impart any business advice and should be on no panels to give advice to startups, but only as a moderator. The fact that the incubator is being run by Mr Jenner is another joke. Please publicly state his business track record on the site, rather then a few obscure lines such as “previous successes at multiple startups etc”. Unless you have Y combinator, techstars and to a large extent seedcamp quality mentors it is not worth giving up 6% for such advice. Just watch a recent interview with David Tisch who is running Tech Stars New York who comes from a wealthy background and was considering setting up his own incubator programme. He realised and stated it wasn’t a matter of money but there was a huge array or partnerships, mentors and other complexity to running this, hence the reason he joined up with TechStars. They even said that the $18,000 dollars (i think thats the right amount) is invested to add a monetary value so the startup doesn’t feel like they are trading equity just for advice. Also, they are providing partnerships into the likes of bloomberg etc. and other big companies in NewYork, what is a nursing home businessman going to provide to a tech startup. With the kind of guys that the likes of techstars, Y combinator bring to the table you would probably give equity just for the advice, let alone the money. However definitely not in this case.In this day and age on the internet there is so much killer information if you are hungry to find it and actually take the time to digest and apply it, where you can get a 50% solid base level of knowledge by watching shows like mixergy, thisweekinstartups, venturecapital, reading posts from people like Mark Cuban, Mark Suster, Chris Dixon, watching Seedcamp videos from Ryan, the Message Labs guys. Then if you need that last 20-30% of direct advice on your business, then hustle and contact these people directly or work hard to get in front of them for a cup of coffee and advice, which tends to be the best indirect path towards investment. I know we have a smaller pool of high calibre experienced and successful tech related entrepreneurs/mentors in the U.K then the states however you can seek them out but don’t accept second rate substitutes for the sake of it. Or go to a few School for Startups events run by Doug Richard which cost a few hundred pounds, not 6%.None of these first generation of entrepreneurs had this wealth of knowledge online to access, or programmes to hand hold them, or waited for the government to give them the green light. Can we also please can we also stop making out that having an office room and an internet connection is a big plus in these incubators, what happened to the 3 guys in a garage and broadband to get their business of the ground, initial traction etc.

  28. Is it too pessimistic or wrong of me to think that these “startup accelerators” seem to prey on wannabe entrepreneurs who may not have the stomach (or cash) to do it on their own? It strikes me that the folks who go this route end up with at the very least, buyer’s remorse, rather than an appropriate sense of ownership and knowledge that gives them the extra push they may need to go for it.

  29. Is it too pessimistic or wrong of me to think that these “startup accelerators” seem to prey on wannabe entrepreneurs who may not have the stomach (or cash) to do it on their own? It strikes me that the folks who go this route end up with at the very least, buyer’s remorse, rather than an appropriate sense of ownership and knowledge that gives them the extra push they may need to go for it.

  30. This is some form of scam I think. It should be illegal because at the end, you don’t own your own product and your working for free for someone that is just a green goblin with a pot full of gold waiting for a share of your profit. Sadly in my country, this kind of loan is supported by the goverment (I live in Venezuela).

  31. Thanks for sharing Ryan an interesting read really useful.

    In my first start up we got loaned £12k in return for some equity 10% this also came with mentoring, which in hindsight was worth more than the cash especially as the guy had contacts and 30 years experince within our target market.

    The money was invaluable at that time as the banks weren’t putting into tech start ups (Quelle Suprise).The money meant we could market the product create awareness and purchase essential items.

    The mistake we made was signing a minority protection clause meaning the loan provider/shareholder couldn’t have his stock diluted which to other investors was a big fat lead weight and limiting factor for the future.

    Fortunately the loan provider could see the problem moving forward and with negotiations we drafted a side letter to the loan changing the clause that was causing us problems – most  investors arent as reasnoble or understanding so be careful and always read the small print NO MATTER HOW EXCITED YOU ARE! and get someone legal advice from someone its worth paying for trust me what ive spent on hair dye would of payed for this by now.

    Ryan rightly points out they gave a way 0% to the bank for their loan, to be fair though it’s probably much easier for ryan and co to get the money as most banks WILL NOT give you cash for a start up The EFG Ryan points out is an excellent option as is the EIS Scheme which means investors can off their investment in your company against their income tax bill – very appealing as no one likes paying tax if it can be helped – Tax Man or Start up hmmm let me think about that for 2 seconds.

    From experience if you cant get the money then schemes like Oxygen can work cause if you believe in your start up then 96% of something is better than 100% of nothing. Always check with any loans and or agreements that you are not personally responsible for the debt make sure it’s with the company and also that the loan provider doesn’t have a charge over your assets/IP if things go wrong.

    Best of Luck x

  32. Thanks for sharing Ryan an interesting read really useful.

    In my first start up we got loaned £12k in return for some equity 10% this also came with mentoring, which in hindsight was worth more than the cash especially as the guy had contacts and 30 years experince within our target market.

    The money was invaluable at that time as the banks weren’t putting into tech start ups (Quelle Suprise).The money meant we could market the product create awareness and purchase essential items.

    The mistake we made was signing a minority protection clause meaning the loan provider/shareholder couldn’t have his stock diluted which to other investors was a big fat lead weight and limiting factor for the future.

    Fortunately the loan provider could see the problem moving forward and with negotiations we drafted a side letter to the loan changing the clause that was causing us problems – most  investors arent as reasnoble or understanding so be careful and always read the small print NO MATTER HOW EXCITED YOU ARE! and get someone legal advice from someone its worth paying for trust me what ive spent on hair dye would of payed for this by now.

    Ryan rightly points out they gave a way 0% to the bank for their loan, to be fair though it’s probably much easier for ryan and co to get the money as most banks WILL NOT give you cash for a start up The EFG Ryan points out is an excellent option as is the EIS Scheme which means investors can off their investment in your company against their income tax bill – very appealing as no one likes paying tax if it can be helped – Tax Man or Start up hmmm let me think about that for 2 seconds.

    From experience if you cant get the money then schemes like Oxygen can work cause if you believe in your start up then 96% of something is better than 100% of nothing. Always check with any loans and or agreements that you are not personally responsible for the debt make sure it’s with the company and also that the loan provider doesn’t have a charge over your assets/IP if things go wrong.

    Best of Luck x

  33. Don’t agree. It takes faith in a business plan and the person to invest in the project. Without a solid business plan, and many do not know HOW to write one and pull it together, how can a start-up succeed? Moreover, how can a startup get the network established in its industry with just ‘an idea’? That is not a ‘business’. It’s a dream. A business is getting the support, funding and network to propel it. I reckon this is ideal for people who NEED help WITHOUT having to put their home at risk – it seems extreme, but giving up 6% isn’t all bad with the suffix that it’s paid back IF you make a profit Seems OK to me. Hales has explained it briefly. It just has to be right for the individual and that is down to choice.

  34. Beautiful, love that screen grab.

    And to quote my comment on Tech Crunch Europe’s post: “I hope they plan to wine and dine the startups before they f……”