A venture capital firm says it invests in people “pre-idea, pre-team”(blogs.wsj.com)
blogs.wsj.com
A venture capital firm says it invests in people “pre-idea, pre-team”
http://blogs.wsj.com/digits/2015/06/12/no-team-no-idea-no-problem-this-vc-will-fund-your-startup-anyway/
16 comments
So, in a nutshell, EF is trying to recruit people from different areas who wants to be entrepreneurs, but doesn't have an idea/team, and EF will create suitable teams out of these people and give them money to build some product?
I have a question. Who exactly will decide what the product would be?Is this something those people would decide among themselves, or the EF would put them on a particular project idea they think is suitable for that team?
I have a question. Who exactly will decide what the product would be?Is this something those people would decide among themselves, or the EF would put them on a particular project idea they think is suitable for that team?
You have complete freedom over who you work with and what you work on. They fund you unconditionally for the first three months and you can walk away at any time if you want to.
Their website is actually pretty informative: http://www.joinef.com/our-programme/
Their website is actually pretty informative: http://www.joinef.com/our-programme/
> 10% of applicants are accepted after multiple rounds of interviews and even a logics and computing test.
It's interesting to note that they are trying to hire entrepreneurs the same way Google was trying to hire programmers 10 years ago.
It's interesting to note that they are trying to hire entrepreneurs the same way Google was trying to hire programmers 10 years ago.
It's actually moderately appropriate here if they're "drafting" out of school. (Potential versus having real work to show)
The 30-year-old with a PhD in neuroscience from Cambridge University plans to set his “media-truth-detector” loose on what he calls Russian propaganda, mostly against his native Ukraine.
Unfeasible and uninvestable, but good if you want to get an EU grant I guess. Who is even the target market? Meanwhile just follow all russian, ukrainian and western media sources and compare them.
Unfeasible and uninvestable, but good if you want to get an EU grant I guess. Who is even the target market? Meanwhile just follow all russian, ukrainian and western media sources and compare them.
This reads like an Onion headline.
I'm at month 3 of the EF process. Happy to answer any questions :-)
Once you get past the headlines, is it more like a course (where you pay tuition) or an incubator (where you commit to a % of your future company in exchange for money)?
It's completely the latter.
(disclaimer: also in the current cohort)
(disclaimer: also in the current cohort)
Being paid to learn is a great thing!
>pre-idea, pre-team
Assuming this was true for you? do you have an idea & team now? How long were you funded/hired without these two in place? Theoretically how long can one last in the program if you dont find these 2?
How long have you been burning their cash, have you raised other funds? You could be considered an even Riskier (debatable) investment than the alternate of an actual startup with an MVP actively looking for funding, so does their percentage reflect that? Did you pay an entrance fee as well?
Thanks!
Assuming this was true for you? do you have an idea & team now? How long were you funded/hired without these two in place? Theoretically how long can one last in the program if you dont find these 2?
How long have you been burning their cash, have you raised other funds? You could be considered an even Riskier (debatable) investment than the alternate of an actual startup with an MVP actively looking for funding, so does their percentage reflect that? Did you pay an entrance fee as well?
Thanks!
I think the EF model recognises that a lot of technical people create way more value than they are able to capture working in a traditional company. Some then go out and start companies of their own, but there’s a fairly large gap from labouring away at Google to going without salary for six months while you get yourself in a position to get into y-combinator et al.
EF tries to bridge that gap and capture a slice of the value in the process. It’s not for everyone, but I think more people should really consider this option.
Graphene detailed the economics, so I will just add that yes - the valuation is lower than what you could do had you spend 6-12 months on your own first, but in an endeavour that is likely to fail iteration speed is critically important. I have moved faster and learned more during 3 months with EF than I would have 6-12 months on my own. I’m still young but I won’t be forever - so I’m willing to give up a fraction of potential upside to decrease potential downside.
Personally I actually joined EF with a co-founder an idea and a product which is quite unusual. Two weeks into the program we decided to start from scratch and we are better off for doing so. EF is the kind of environment that encourages you to do this and an environment i missed during my time at university.
EF tries to bridge that gap and capture a slice of the value in the process. It’s not for everyone, but I think more people should really consider this option.
Graphene detailed the economics, so I will just add that yes - the valuation is lower than what you could do had you spend 6-12 months on your own first, but in an endeavour that is likely to fail iteration speed is critically important. I have moved faster and learned more during 3 months with EF than I would have 6-12 months on my own. I’m still young but I won’t be forever - so I’m willing to give up a fraction of potential upside to decrease potential downside.
Personally I actually joined EF with a co-founder an idea and a product which is quite unusual. Two weeks into the program we decided to start from scratch and we are better off for doing so. EF is the kind of environment that encourages you to do this and an environment i missed during my time at university.
They fund individuals for a fixed, three month period, during which you are free to work on whatever and with whomever you want.
After three months, they invest £10000 (in exchange for 8% equity) in all teams that are settled on an idea and seem promising.
There are no fees of any kind.
(disclosure: I'm on the current cohort)
After three months, they invest £10000 (in exchange for 8% equity) in all teams that are settled on an idea and seem promising.
There are no fees of any kind.
(disclosure: I'm on the current cohort)
> “We are probably the most risk-seeking investors in the world,” said Matt Clifford, EF’s co-founder.
This is a great quote, but the reality is more like: "If we didn't start a firm that invests in companies before they exist, we wouldn't have any dealflow."
> Despite the risk-–30% of the entrepreneurs EF funds drop out without ever creating a company –Clifford said he has no difficulty finding investors for his venture firm.
Most prospective LPs can't get into top funds, but in markets like the one we have today, they don't go home. They funnel their money into second, third and fourth-tier funds. There were a lot of these in the first .com boom.
This is a great quote, but the reality is more like: "If we didn't start a firm that invests in companies before they exist, we wouldn't have any dealflow."
> Despite the risk-–30% of the entrepreneurs EF funds drop out without ever creating a company –Clifford said he has no difficulty finding investors for his venture firm.
Most prospective LPs can't get into top funds, but in markets like the one we have today, they don't go home. They funnel their money into second, third and fourth-tier funds. There were a lot of these in the first .com boom.
Similar to sports agency and drafting young athletes. Will tech hiring become televised events with sideline commentary?
So they give you a couple grand. What other value do they provide? Seems like a bad deal for people who actually have good ideas and can execute.
I've never been through the programme, but I've worked with several people who have.
Most young entrepreneurs who "go it alone" tend to pick up a network of useful contacts - advisors, introducers, investors, corporate buyers, talented potential co-founders/employees etc - over a period of a few years. EF are very good at speeding up that process, so when you're starting your first company you've already got a base of people around you who can provide you with the support and connection you need, without you devoting large portions of your time to it.
It's easy for young entrepreneurs to downplay the importance of that network because there's a selection bias towards confident naivety amongst people who've decided to set up their own company rather than following a safer, more established path (I know I did when I first started), but looking back on it, objectively I'd say joining them is a good idea for almost any graduate entrepreneur.
Having someone who, without any real effort from you, can represent you to a VC from a position of power, make warm introductions to large numbers of angels in your domain, find you really good candidates for early-stage roles in your company, or introduce you to people in big companies who're actively looking to buy products from startups is a blessing you can almost overlook if you've got it but helps you avoid some serious pitfalls.
Most young entrepreneurs who "go it alone" tend to pick up a network of useful contacts - advisors, introducers, investors, corporate buyers, talented potential co-founders/employees etc - over a period of a few years. EF are very good at speeding up that process, so when you're starting your first company you've already got a base of people around you who can provide you with the support and connection you need, without you devoting large portions of your time to it.
It's easy for young entrepreneurs to downplay the importance of that network because there's a selection bias towards confident naivety amongst people who've decided to set up their own company rather than following a safer, more established path (I know I did when I first started), but looking back on it, objectively I'd say joining them is a good idea for almost any graduate entrepreneur.
Having someone who, without any real effort from you, can represent you to a VC from a position of power, make warm introductions to large numbers of angels in your domain, find you really good candidates for early-stage roles in your company, or introduce you to people in big companies who're actively looking to buy products from startups is a blessing you can almost overlook if you've got it but helps you avoid some serious pitfalls.
There is such a thing as too early. The valuation for the 8% equity here really bites.. you're getting smaller investment than a top tier accelerator and you're going through that 'accelerator' at such an early point in the product that your next step is likely another accelerator. I get that these programs can have value, but the likely outcome is messing up your cap table. It also is a bit awkward to start a start-up when your personal finances don't give you months of living expenses -- this seems like a recipe for large # of failures and taking bad money when you're too early for good money.
£10k for an 8% equity stake, how does this compare to other funding in London? The article mentions the "Founder Institute" provides £1k for 3.5%.
Doesn't YC give 120K for 7%? An incubator/accelerator that isn't as good as YC (and therefore has less to offer) should have a better deal than that to make up for the difference. Given YC as a baseline, an investment of 10K GBP == 15488 USD should be taking less than 0.9% of the company.
From the YC application page:
"The ideal company would have two or three founders. We’ll consider those with four or five. We’re reluctant to accept one-person companies, though we have funded a few."
There exists a large group of technical people who are currently only capturing a small fraction of the value they are creating for whom getting into a position where they would fit the YC ideal company is untenable. For this group EF is a valuable option and I'm quite surprised this model isn't more widespread.
Everybody in the EF cohort are quite smart so if they were in a position to take the YC deal i'm sure most would :-)
"The ideal company would have two or three founders. We’ll consider those with four or five. We’re reluctant to accept one-person companies, though we have funded a few."
There exists a large group of technical people who are currently only capturing a small fraction of the value they are creating for whom getting into a position where they would fit the YC ideal company is untenable. For this group EF is a valuable option and I'm quite surprised this model isn't more widespread.
Everybody in the EF cohort are quite smart so if they were in a position to take the YC deal i'm sure most would :-)
>An incubator/accelerator that isn't as good as YC should have a better deal than that to make up for the difference
Only from the perspective of someone being recruited by both YC and the alternative. If YC isn't an option (as it isn't for most people), then it doesn't much matter whether or not YC is offering a better deal to someone else.
Only from the perspective of someone being recruited by both YC and the alternative. If YC isn't an option (as it isn't for most people), then it doesn't much matter whether or not YC is offering a better deal to someone else.
And at some point your only option is Vinny, who hangs out all day at the bar over on 4th. His deals can be...problematic, but he'll give them to anyone.
Comparable. Techstars take slightly less for the same amount: http://www.techstars.com/funding/
[deleted]
Founder Institute charges GBP 1k, takes 3.5% equity, redistributes monies from any liquidity event to the alumni of founders institute and takes a 15% cut of that.
Seedcamp is "€25k for 5% w/ optional further €50k for no more than 2% (totalling €75k for 7%)" [0], which at current exchange rates is around £18K for 5%.
[0] http://seedcamp.com/our-deal-terms/
[0] http://seedcamp.com/our-deal-terms/
I guess it makes sense that Entrepreneur First are offering less money for more equity as they're taking people with "no team" and "no idea".
Just as afraid to invest as any other VC/acc/angels in London. This is why it's not a Silicon Valley. I mean how are you even supposed to rent a fancy office in the center of London?
MOST accelerators will outright reject, if not make the barrier to acceptance vastly higher for any company that went through a "pre-accelerator". Being in a pre-accelerator makes it far harder to get into an accelerator. So pre-accelerator is really a misleading name.
But change the name of these organizations to "VC firms" or "angel groups" - much better description.
But change the name of these organizations to "VC firms" or "angel groups" - much better description.
Sounds like they are trying to manufacture startups like Lou Pearlman manufactured musical acts.
I doubt there will be a tech startup equivalent of the Backstreet Boys, though.
I doubt there will be a tech startup equivalent of the Backstreet Boys, though.
Isn't that just an entrepreneur-in-residence?
also, "pre-birth" and "pre-kindergarten"
Well, over 90% of getting funded by VCs is stuff that happens before birth, so yes, that is literally true.
location, location, location...
Basically you need to invest in fundamentals while the asset itself is at its cheapest, and "not yet existing" may happen to be among the cheapest states of the asset
Basically you need to invest in fundamentals while the asset itself is at its cheapest, and "not yet existing" may happen to be among the cheapest states of the asset
Michael, what you've just written is a gratuitously negative comment[1] that adds nothing. Guess what, 99.999% of getting funded happened in Earth's prehistory of 4.5 billion years, at any point during which things could have gone differently and precluded humanity and culture. Out of the remaining 0.001% - 45,000 years - scarcely ten thousand consisted of the establishment of western civilization and only the scant past few decades have established an Internet and a culture where literally anyone in the western world with an idea can start making it a reality, on a physical (if not cultural) level - i.e. physically nothing is required that the average person cannot access. Physically you do not need access to anything except knowledge and culture, which are actively working to take away. You are stealing.
The way to expand this opportunity is not to focus on the first 99.99999% of history, but the next ten years. You add nothing and take significant amounts away from that. I'm sick of your negativity. Here's a fact: I'm not asian, but asians are far more likely to get funded. SO WHAT! How does that change whether I'm taking the time to build something?
Michael go build something. Anyone can call people names. People should downvote your negative comments on sight. Besides being policy here, anyone who is downvoting you is literally creating good in the world. Because you are actively preventing the expansion of a culture of building. We might not have the power to get a sixty year old who had to go work early in life and received no formal education funded, regardless of this person's merits or ideas. But we can - and should, are required to - downvote you, and contribute to a positive culture where in five years, when that person is sixty-five, and has spent the past five years building something, he can be.
[1] the definition of which is that it is not new, not useful, not insightful, and adds absolutely nothing while being negative. Similar to if you said to a commenter: "by the way YOU SUCK at every skill, when compared to Mozart at music". This is undeniably true, he started at the age of four and specialized very hard. It is a comment nobody would disagree with on a literal level. It is also an absolutely worthless comment that adds nothing: the only reason anyone would write it is so that they could say the word "YOU SUCK" and then weasel out of it. Of course you should get downvoted, so hard you delete your comments which add nothing. Go build something, Michael.
The way to expand this opportunity is not to focus on the first 99.99999% of history, but the next ten years. You add nothing and take significant amounts away from that. I'm sick of your negativity. Here's a fact: I'm not asian, but asians are far more likely to get funded. SO WHAT! How does that change whether I'm taking the time to build something?
Michael go build something. Anyone can call people names. People should downvote your negative comments on sight. Besides being policy here, anyone who is downvoting you is literally creating good in the world. Because you are actively preventing the expansion of a culture of building. We might not have the power to get a sixty year old who had to go work early in life and received no formal education funded, regardless of this person's merits or ideas. But we can - and should, are required to - downvote you, and contribute to a positive culture where in five years, when that person is sixty-five, and has spent the past five years building something, he can be.
[1] the definition of which is that it is not new, not useful, not insightful, and adds absolutely nothing while being negative. Similar to if you said to a commenter: "by the way YOU SUCK at every skill, when compared to Mozart at music". This is undeniably true, he started at the age of four and specialized very hard. It is a comment nobody would disagree with on a literal level. It is also an absolutely worthless comment that adds nothing: the only reason anyone would write it is so that they could say the word "YOU SUCK" and then weasel out of it. Of course you should get downvoted, so hard you delete your comments which add nothing. Go build something, Michael.
Using a throwaway account to attack someone is not cool. If you have the balls (or the equivalent for the other gender), stand up and make the comment in your own name.
(same user, I lost the pwd). I wouldn't touch Michael's negative comments, nor do I want to prop up criticism with a username. he needs to just stop posting gratuitously negative thing about startups (most of what moves him to comment), which are not constructive, and it's up to the rest of us to downvote gratuitously negative things until he learns that this is not the forum for them, unless he starts phrasing them constructively. the other respondent already tried to make this about me ("Until you're a successful founder from a bad family background and no history of founding startups, no ivy league education"...) so I am glad that I didn't get into this under a normal account. this does not seem like a productive thread.
Notice how other people in this thread can level criticisms at both the topic of discussion and towards one another while flying their own handle?
Notice how you cannot do this?
Notice how you cannot do this?
given that my main point is that this level of discourse is totally inappropriate for hackernews, there is no reason I would engage in this. it's like feeding a troll. if there were something substantial to discuss, that would be a different story.
Until you're a successful founder from a bad family background and no history of founding startups, no ivy league education, and no nest egg to fall back in your 20s, you shouldn't make such aggressive rants.
You're being quite ridiculous.
All he said was that people's success and failures are to a large degree determined when they are born, which is true. The genes you're born with, the socioeconomic demographic you're born into, your parent's level of involvement, etc are all determined before you're born. That's factual. It is only with extreme effort and perseverance that one can counter acts of fate. It is possible, just unlikely.
How does Michael expressing this truth justify your personal rant against him?
All he said was that people's success and failures are to a large degree determined when they are born, which is true. The genes you're born with, the socioeconomic demographic you're born into, your parent's level of involvement, etc are all determined before you're born. That's factual. It is only with extreme effort and perseverance that one can counter acts of fate. It is possible, just unlikely.
How does Michael expressing this truth justify your personal rant against him?
(I don't think you should be downvoted for your question).
If he had phrased it the way you just did (in your middle paragraph) it would have been fine. He didn't, he just posted something inflammatory. so your middle paragraph is a lot better, it took thought rather than just writing down a literal truth. (it is also something nobody would disagree with, including me, and you certainly wouldn't have been downvoted for it.) If you had been the one to write the comment, I'd have also appreciated your suggestions as to what can be done about it systemically. your paragraph is quite productive, and an important point.
as a matter of fact, what do you suggest we do? (I mean concrete steps.) should funds try to set quotas for minorities, for example? (this is a genuine question, and I'm asking you littletimmy.)
If he had phrased it the way you just did (in your middle paragraph) it would have been fine. He didn't, he just posted something inflammatory. so your middle paragraph is a lot better, it took thought rather than just writing down a literal truth. (it is also something nobody would disagree with, including me, and you certainly wouldn't have been downvoted for it.) If you had been the one to write the comment, I'd have also appreciated your suggestions as to what can be done about it systemically. your paragraph is quite productive, and an important point.
as a matter of fact, what do you suggest we do? (I mean concrete steps.) should funds try to set quotas for minorities, for example? (this is a genuine question, and I'm asking you littletimmy.)
What should we do is a really difficult question.
It will require a multi-pronged effort, ranging from trying to implement better labor laws to improve parental involvement and reduce stress among the poor, better community health plans to counter poor nutrition, better public schooling through investing in teacher's salaries etc. Maybe after 20 years of doing that we're going to see minorities improve their standards.
But considering that any such long-term approach will be blocked immediately by the free-market enthusiasts, I fear there is nothing much that we can do. That raises a more important question: is fight against the machine even possible?
It will require a multi-pronged effort, ranging from trying to implement better labor laws to improve parental involvement and reduce stress among the poor, better community health plans to counter poor nutrition, better public schooling through investing in teacher's salaries etc. Maybe after 20 years of doing that we're going to see minorities improve their standards.
But considering that any such long-term approach will be blocked immediately by the free-market enthusiasts, I fear there is nothing much that we can do. That raises a more important question: is fight against the machine even possible?
Ah, your response is good but very wide and 'systemic', i.e. what society as a whole can do over decades. But in the meantime, VC's are free to make their investment decisions, so I was wondering what you thought they should do differently to make a difference, today. Should it be quotas or minimum investments for people from alternative backgrounds? Or, what can VC's do to help level the playing field? If they receive smaller amounts of dealflow from alternative backgrounds, it's hard for them to apply their usual methods of investing... i.e. they might not even get access to opportunities from those backgrounds. what, then, could be done?
I didn't get your rant until this comment thread really showed me what kind discourse you're looking for and how the other poster was being inflammatory. On your side.
Now, on this topic, maybe it would be possible to establish a matching fund (maybe crowd-sourced, angellist style?) that gives some amount of matching funding in order to incentivize those VCs investing in demographic outliers, lowering the potential economic risks to investing in first-time, first-generation founders and non-Stanford/MIT grads.
Now, on this topic, maybe it would be possible to establish a matching fund (maybe crowd-sourced, angellist style?) that gives some amount of matching funding in order to incentivize those VCs investing in demographic outliers, lowering the potential economic risks to investing in first-time, first-generation founders and non-Stanford/MIT grads.
I see your point. Honeslty, there is probably nothing VCs can do to solve this problem. They are but a small snowflake in this avalanche.
Our universities don't exhibit anywhere near the same 'entrepreneurial culture' vs the US equivalents (although this is slowly improving - thankfully). We also don't have the big tech companies (google/fb etc) with the means to compete with banks/hedge-funds for the highest quality engineers/PMs. In the US, these institutions serve as natural breeding grounds for startups. Without these environments, it becomes much more difficult to find like-minded people to develop ideas and raises the time/cost associated with doing so.
I joined EF on the current cohort for this reason and have been surprised (to the upside) with my fellow cohort members. They have managed to recruit some exceptionally talented and motivated people who would be difficult to find otherwise. Also, apart from the cash investment (which just serves to pay your living costs), they have a great network of industry contacts, alumni and investors.
The jury is out on whether the EF model will succeed in producing valuable companies. However, given the level of technical talent it is attracting, they are definitely solving a real problem and I believe it will outperform the YC-style accelerators who have been struggling in Europe. Hopefully they will open the investment fund up to alumni in the near future :)
Message me if you have any questions - would be happy to answer.