Dmitry Maslennikov Talks About How FunCubator Attracts Startups
Founder of Disruptive.vc Dmitry Maslennikov explains how an accelerator FunCubator is trying to avoid common pitfalls of accelerators and become an attractive partner for startups
I create and launch corporate acceleration programmes and provide consultations for those who consider establishing their own startups. One of the key elements of my work is the design of the terms and conditions of acceleration programmes for corporate clients, which requires me to balance between satisfying business interests of my corporate clients and maximizing the value for the founders of startups, whom we need to attract to our accelerator.
The creation of a valuable offer for startups is a crucial element of the establishment of any accelerator, which requires special attention and understanding of entrepreneurial mindset. It is this mindset that makes me so amazed sometimes with how irrational and excessively romantic it can be.
With this article, I will try to bring the fantasies of the so-called first-time entrepreneurs down to earth as well as dispel the illusions of some experienced founders of startups. I will try to demonstrate the real state of affairs and help you avoid unrealistic expectations related to the terms of collaboration with accelerators. I will show the exact same things that occurred to me when I was preparing for the launch of my own accelerator, which I will talk about later in this article.
To this end, I will provide a practical example of my current client, the accelerator FunCubator, which invests in startups at the interface of entertainment and technologies.
We are used to thinking that an accelerator usually takes a small share for the participation in its acceleration programme and for the provision of primary investment, while earning money on the subsequent capitalization of the startup, its sale to a strategic actor, IPO or exit with the entrance of the investor at the next round. By Western standards, we should expect a share of 6 to 12 per cent for some X amount of money. However, this X amount of money is vastly different here and there, but we have gotten used to it by now.
To be honest, I myself was deeply surprised at first by the desire of the client to take control over startups through the acquisition of tens of percents in early-stage accelerators. This desire went against the commonly accepted logic, which states that the founders of startups need to maintain control over their company and have the maximum share in it in order to stay motivated to develop their business.
Let me digress a little here. When creating an accelerator, corporations often encounter the problem of acquiring shares in startups, because from a legal perspective, it is difficult to take them and operate with them in the future. As a result, it often turns out that at an earlier stage it is easier for corporations not to take any share at all. Instead, it is better to give startups everything they need, which will enable the corporates to have the priority right when establishing subsequent collaboration with these startups.
Back to my original point. As I mentioned earlier, my client wants nothing but to acquire the majority stake in the startup that joined the accelerator, while my challenge here is to develop the conditions and value proposition in such a way as to make it attractive for strong teams and prospective startup founders with ideas.
In search of the solution for this challenge, I came to some very interesting conclusions, which I would like to share with you as they enabled us to formulate, in my opinion, one of the most attractive offers that an accelerator can make to a startup:
1. In order to develop your startup, you will need money. At the very least, money will be needed to pay the bills and cover the living expenses to be able to work full-time on your project instead of trying to set aside time to do it outside of you main employment. At the very most, you will need money to put a team together, find contractors and support marketing activities. I believe that we have so few startups because their founders, for the most part, do not have seed capital, safety nets and the opportunity to stop working for 6 to 9 months, focusing solely on their projects.
FunCubator provides this opportunity by investing 6 million roubles over the span of 6 months.
2. Having received grants, angel investment, funding from friends, family and fools (FFF) or accelerator funding, which is fortunately a common thing in Russia, startups usually do not survive until the next round as they fail to survive in the “valley of death” or miss the bridge-round, or simply because there are not enough investors working between the seed stage and Series A round of financing.
The team from FunCubator is trying to solve this problem, because its members understand that this is a real challenge. I think we will be able to offer startups something interesting in the nearest future.
3. The life of a startup, its team members and founders in the “valley of death” is a doubtful pleasure. It is characterized by the permanent lack of time and money, which creates a high-stress environment. Based on my observations, people who have experienced this often end up without families and rest, but with experience and different health issues. Yes, this is called entrepreneurship, and the world loves and respects entrepreneurs for being able to go through this. But ask yourself, what would you be ready to give up, what would you relatives be willing to sacrifice?
It is for this reason that many of those who would like to become entrepreneurs (whom we also call ‘wantrepreneurs’) prefer to have stable jobs rather than creating a startup.
FunCubator offers a solution. You can keep developing the project while receiving your market rate salary every month and being a shareholder of the startup with a call-option feature. In this way, you will not have to deal with all the ‘benefits’ and limitations that come with entrepreneurial work and lifestyle.
4. It is extremely difficult to make money from a startup. By this I mean cashing out — selling your share and startup as a whole. We have a tremendous problem when it comes to finding an exit — selling startups to corporations, which would rather wait until the startup goes bankrupt and then employ its team or buy their product through placing an order or using licensing. And I don’t blame them for that — in fact, I offer them these solutions myself quite often.
FunCubator offers immediate earnings. The company is ready to act as a strategist at an early stage and enables the founders to cash out early. In other words, startup founders can make a full or a partial exit by selling their shares in whole or in part to the current investor. It is true that you will not be able to make as much money as you could in the case of an overwhelming success of your startup. But you must remember that if you have not expanded your project globally, it will be difficult to sell your startup in Russia. And a number of successful deals constitute nothing but rare exceptions to this rule.
To sum everything up, I believe that we have made a unique programme of acceleration for the Russian context that provides exceptional conditions, which can confuse at first, seem as a direct insult to one’s ambitions or come across as extremely bold. But if you think about it, no one has ever offered anything like this before.