Announcing Start@Spark: Why are we doing this? | Hacker News Reader

Announcing Start@Spark: Why are we doing this?

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27 pointsivankirigin11 comments

Not a whole lot of concrete detail - just announcing that they are open to entertaining funding seed stage start-ups. They have a WuFoo application form with some good questions you need to be able to answer: http://www.startatspark.com/start/start-apply-wufoo.html

What evidence do you have that this is a severe problem or meaningful opportunity?

What’s the next best alternative? Who are you competing against and why is there still an opportunity?

More detail here: http://www.startatspark.com/start/start-index.html

Very impressed on a few items here:

1. Timely turnaround in three weeks. It's clear that Spark values your time and similarly, entrepreneurs value theirs.

2. Leading legal counsel and open deal structure. Having solid legal advice is something most early-stage companies overlook (not because the advice isn't valued, but rather, it may not be a top priority to building/shipping your product). In addition, Spark allows other investors to participate in the seed round.

3. Structure of investment. I was surprised to see that Spark was offering the investment in a convertible loan, where the loan will later convert to equity in the event of the company's next round of financing. The issue of valuation or "pegging a company's valuation" is relatively mute with this format.

Overall, this is a great step for innovation in the Northeast. Congratulations Spark!

This looks like an interesting alternative for what I was going to be applying to YC with during the next round.

Especially with the New York locale, as that was one of the 3 areas I've been thinking about that would have the culture for what I'm attempting.

Interesting prospect that's for sure. I guess I'll have to keep it in mind as we're gearing up to get going.

That being said, is this only financing and nothing else? If so it doesn't look to be as attractive as YC in my personal opinion.

I'd love to learn more about how convertible debt (like this) works for early stage tech startups.

This is a very common structure for angel investments. Instead of trying to determine a value for your company at the seed stage they give you money and call it a loan. When you raise money at the A round the loan converts to a stock purchase at the amount they loaned you plus some percentage - 20% in this case, a little high but they are a brand name not some random angel.

For example they loan you $100k to get started. 6-9 months later you get a VC to invest $1MM at a $1MM pre-money valuation. The VC now owns 50% $1MM/$2MM post money and Spark owns 6% $120k/$2MM

But what happens if (especially in this environment) you can't raise money? Are you now legally on the hook to repay the loan?

I would assume that if you go out of business, as creditors they get their money back first during asset liquidation. But you aren't personally on the hook. (Part of why it's a good idea to keep your business and personal finances separate!)

Edit (think you were asking a different question) -- as I understand it, convertible bonds usually have a low interest rate and long duration, so you aren't supposed to feel like they need to be repaid immediately. If there's no future financing, but your business starts making money slowly, you'll eventually have to repay it, yeah.

Do these convertible debt-style seed-funders typically take a board seat?

no. Board seats are normally series A with VCs or later

Maybe they don't take a board seat but you still have to take their phone call when they have an idea for you

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