| | | | | | | Presented By THE NORTHERN TRUST INSTITUTE | | | | Axios Pro Rata | | By Kia Kokalitcheva · Oct 08, 2022 | | Welcome back to another Saturday! This week, we're looking at a couple of startup topics that have piqued my interest recently. - 👋 Reminder: Feel free to send me tips or comments by replying to this email or on Twitter @imkialikethecar.
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Today's Smart Brevity™ count is 966 words ... 3½ minutes. | | | | | | 1 big thing: The trouble with accelerators |  | | | Illustration: Aïda Amer/Axios | | | | The recent shuttering of a startup accelerator run by On Deck is a reminder that while these programs provide nascent companies access to investors, mentorship and practical support, they are also businesses themselves. Why it matters: Startup accelerators largely get attention because of the highly valued companies they help along the way, how they design (and promote) their programs, and the high-profile gurus who lead them. - Y Combinator, founded in 2005, has become the best recognized and respected accelerator in the world. Still, a number of others have since built successful programs.
Background: On Deck was initially founded in 2016 as a way to connect aspiring entrepreneurs with each other to explore possible business ideas. It expanded last year into a formal startup accelerator program called ODX. - As part of the move, On Deck sought to raise a $100 million fund to back the companies; at one point, Tiger Global (which quietly led On Deck's Series B round) committed to investing $65 million in that fund.
- However, the firm later said it could only invest $10 million, jeopardizing On Deck's accelerator plans.
- On Deck had initially used a portion of its Series B funds to expand the accelerator, with the expectation that its venture fund would soon provide more money, a source familiar with On Deck's operations tells Axios.
Between the lines: "The money in the end was what unraveled it all," explains the source. - The hardest part of an accelerator is, "how do you cover the management fees to hire more people to scale it up?"
- While On Deck charges fees for participating in its various other programs, it didn't want to do that for its accelerator.
- "Tiger Global is a valued investor in our fund and in our corporation," On Deck said in a statement. "The combination of a highly curated, non-dilutive program for founders combined with the option for funding from On Deck is a key differentiator for us. In fact, many of our fellows are experienced and repeat founders who have gone through traditional accelerators in the past and prefer our format because it gives them maximum optionality to explore what's next."
The big picture: Startup accelerator business models vary across the industry. - Some use only management fees from the venture funds raised to back participating startups. In turn, that money goes to hiring program staff and paying for other resources.
- Others actually charge fees to the companies, typically taken out of the venture funding they receive as part of the program.
- And some turn to sponsors and business partners to finance the program's operations.
What they're saying: "We're here to help the founders," Pear partner Ajay Kamat tells Axios when asked if the firm would ever charge any participation fees. "I don't think that makes any sense for us." - Notably, Pear is a small boutique operation and a venture firm, so it's able to use the management fees from its investment funds to pay the salaries of its staff, who also work on the accelerator.
The intrigue: While charging fees to startups has historically been seen as predatory (or gauche perhaps), that perception might be changing. - "My take is it's totally transparent and fine," said a former insider of 500 Global, which currently charges $37,500 for its flagship accelerator.
- "I think the way other accelerators that don't have funds do it is a way bigger management fee, which nets out to the same economics for the companies."
The bottom line: "Everyone is going out trying to be [Y Combinator] and they can't do it," says the On Deck insider. - "Whatever beats YC is not going to look anything like YC."
|     | | | | | | 2. Startups building for startups |  | | | Illustration: Aïda Amer/Axios | | | | Venture capital investment activity slowed down this year compared to 2021's euphoria. Yet that's not stopping companies from continuing to build more tools that make it easier for startups to raise and manage capital. Why it matters: As Axios has previously reported, the industry is resetting, but it's far from dead — with activity and valuations even higher than before the pandemic began. Zooming in: A few recent examples... - Capital: The rebranded company, named Party Round until last week and initially known for its startup fundraising tools, recently expanded to provide banking and financial management features. The idea: Now that an upstart has raised new capital, it needs to manage and spend it without extra fuss.
- Secfi: Last month, the startup employee equity service rolled out a slew of additional wealth management features. For many startup employees (and alumni), the equity they receive as part of their compensation becomes a significant source of their personal wealth.
- Stonks: The demo day-focused service (and yes, that's its name) recently introduced a capability it describes as a "Stripe-like" checkout feature, where investors can complete an investment in a startup in less than three minutes. Stonks regularly hosts online events, during which startups present their businesses to investors who tune in. Stonks says removing extra steps makes it more likely that investors will follow through.
Between the lines: There's still a lot of capital sloshing around the system and startups raising new funds, so it's as good a time as any to provide more tools to serve the industry. | | | | | | | | 📚 Due Diligence | - Exclusive: Powerset joins the ranks of programs that turn founders into investors (Axios)
- Tiger Global's tech portfolio in limbo as key partner Curtius exits (The Information)
- Global VC pullback is dramatic in Q3 2022 (Crunchbase News)
| | | | | | | | A message from THE NORTHERN TRUST INSTITUTE | | Prices, policy and your portfolio — your inflation questions answered | | |  | | | | Protect your portfolio against rising inflation with answers to common investor questions on the impact of inflation, like how to fortify your portfolio and wealth plan in the face of uncertainty. Why it's important: For investors, the best offense remains a good defense. Find out more. | | | | | | 🧩 Trivia | | In lieu of a trivia question this week, if you've participated in an accelerator program, send me your thoughts about the experience — good and bad! - And let me know if you would do it again.
| | | | | | | | 🧮 Final Numbers |  Data: PitchBook; Table: Axios Visuals | | | | | | | | A message from The Northern Trust Institute | | How will you fund your next big thing? | | |  | | | | A framework for vetting sources of capital can help you succeed — whether you're funding a major purchase to further a passion, making direct investments or starting a new business. Whatever your plans, our systematic approach can surface the best options for you. Learn more. | | | | 🙏 Thanks for reading! And to Javier E. David and Amy Stern for editing. See you on Tuesday for Pro Rata's weekday programming, and please ask your friends, colleagues and entrepreneurs to sign up. |  | | Why stop here? Let's go Pro. | | | | | | Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here.
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