Earlier this year, Yuri Milner and Ron Conway’s SV Angel announced a new fund that offers all Y Combinator startups $150,000 in convertible debt. Not only is The Start Fund a brilliant investment strategy, but the news was also a big win for Y Combinator and the startups housed and developed in the incubator. And it was only a matter of time before other incubators and funds caught on to the idea and emulated a similar strategy. Today, New World Ventures, one of the Midwest’s largest early stage funds, is partnering with Chicago incubator Excelerate Labs to offer their own version of the Start Fund.
Excelerate, which launched its incubator last year, will now offer its entrepreneurs $50,000 in convertible debt from New World Ventures, with no discount or cap. The money is available for Excelerate’s 2011 class of ten startups. Roughly one-third of the money is available for draw down during the Summer and the remainder is available after Demo Day in August.
Similar to The Start Fund, terms are company-friendly (no discount to the next round, no warrant coverage, and a below market interest rate). Plus, the nature of the convertible debt provides the companies with access to capital without locking in valuation terms today.
New World partner Adam Koopersmith tells me that the model created by SV Angel and Milner for Y Combinator made a lot of sense for the fund. New World had invested in two of Excelerate’s first class of startups (EduLender and GiveForward) and believes in the strength of the program.
Excelerate is also announcing for the first time its limited partners who have funded the program, which include a who’s who of the investment community in the Midwest. Partners include Lightbank, New World Ventures, I2A Fund, Sandbox Industries, Hyde Park Angels, DFJ Mercury, OCA Ventures, Brian Hand, Fred Hoch, Bob Fealey, Andrew Razeghi, Dan Ratner, Kevin Willer, Tim Draper, Sam Yagan and Troy Henikoff.
New World’s new offering is bound to be popular amongst the startups in Excelerate’s program. As we saw with the Start Fund, almost all of the Y Combinator startups in the recent Y Combinator class accepted the fund’s money.
Of course for Excelerate, the promise of $50,000 in funding for every startup makes the startup incubator program more appealing than other incubators. On top of the New World funding, Excelerate’s startups receive $25,000 in seed funding for 6 percent of the common stock. Now that there are incubators in nearly all major cities in the U.S., it’s competitive to attract talent to these programs. Excelerate will be able to promise entrepreneurs more money and funding than most other incubators.
The fact that the Start Fund is now inspiring similar ventures in other incubators and programs makes me wonder if the model will eventually be a part of all incubators in the future, including other popular programs such as TechStars.