TechStars will now offer every accepted company a $100,000 convertible note.The money will come from a new $24 million fund backed by Foundry Group, IA Ventures, Avalon Ventures, DFJ Mercury, SoftBank Capital, SVB Financial Group, RRE Ventures, Right Side Capital Management, TechStars Alumni, and several individuals investors.
This $100,000 convertible note becomes equity during later funding rounds. It comes from a separate pool of capital than the $18,000 which startups must accept in return for 6% equity when they agree to join the TechStars program.
“During our last program two or three of our strongest companies were a month away from being out of business. They needed to go raise $50,000-100,000 in the middle of the program and that’s a massive distraction,” said Mr. Tisch.
This funding can help a team make a critical hire or, if they’re in New York, afford an apartment and avoid sleeping on their desk. “We think it’s the right size to help the focus during the program but not throw their valuation out of whack for later rounds,” TechStars founder and CEO David Cohen told Betabeat.
Startups don’t have to take the funding, and can decide to accept at any point during the program. Unlike the previous funding, which came from local capital specific to each TechStars city, this funding will connect the startups with a national network.
TechStars is currently in Boston, Boulder, New York and Seattle, plus affiliated programs that have popped up in over twenty locations, with seven international satellites. “Y Combinator started the year before us, and it’s the same genre, but under the microscope, we could not be more different,” said Mr. Cohen. “The fundamental difference between us and the other accelerator programs is they have a black box, while we have open sourced our model.”