Gary Lee’s Post

#InTheNews | From Dream Launch to Nightmare: Startup Accelerator's Fall Leaves Founders in Debt. «The now-defunct Austin accelerator had filed for bankruptcy amid employee and customer discontent. The court has since ordered the company to auction off the warrants it held in more than 1,000 of the startups that went through the accelerator program. Normally, private companies like startups have control over which investors are allowed to buy shares and the prices they pay. But the bankruptcy court, which works to restore creditors rather than equity holders, isn’t allowing Newchip’s startups to exert that kind of control. Instead, the auctions are ongoing, with the first tranche already sold and upcoming tranches expected to be sold this spring and summer.» #StartupNightmare #FounderStruggle #InvestorBeware #FundraisingFail #EquityAuction #FounderRightsMatter #LeadershipLessons #StartupLeadership #StartupEcosystem #InnovationBetrayal via TechCrunch https://lnkd.in/dF-77Gsc

Dear US-based startup founders and investors. Can anyone explain to me (like I was Autistic) how an early-stage startup can operate in your legal system without constant fear and developing PTSD?  I thought it would only become an issue when we decide to operate in the US. Now, I see that your courts want to democratize access to trauma for all founders in the global startup ecosystem. Let me start from the beginning. As founders, we constantly receive invitations to apply to different accelerators and startup programs. One of them is the Newchip Accelerator, whose representatives have approached us a few times in recent years.  They advertised as "#1 Online Accelerator 🌍 2,500+ Portfolio Companies 📈 $2.2B+ Raised by Alumni" and had TechCrunch exposure. We never had time to complete the program until early 2023, when we finally had some time and a bit of spare cash to actually invest in such an initiative.  We passed the recruitment, and during the "Newchip: Acceptance Status" meeting, we got accepted just a few days before the start of the next batch.  During our "Acceptance Confirmation!" meeting, where we were supposed to sign the papers, something seemed off. My spidey sense took off straight into an ultrasound internal scream.   I've asked them to postpone the signing for an additional 24 hours. This evening, I've done a deep dive to discover why my nervous system objects to joining them. I found that the number of negative comments about the accelerator has grown in the last few months. The next day, on March 30, 2023, I told them that we would not sign anything or pay anything and would not be joining the program.  On 13 May, newspapers published a memo stating, "Newchip Enters Into Bankruptcy Liquidation" (filed for Chapter 11 bankruptcy protection on March 17).  I was sure that we'd dodged a bullet. At least until early May 2024... A few weeks ago, we received 83 pages of legal documents from the US BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS.  I can summarize that bullshit by "trustee wants to sell rights to your shares and needs your financial statements to elevate the price; you must obey or else...".  My first thoughts were: "WTF?!" (17x times) I checked the documents quickly, and there were 1316 more startups on their list! Spread across the whole world! Even more "WTF?!" kicked in. I'm glad that there is interest in trading OUR shares. However, as a founder, I prefer to sell my shares on agreed-upon terms to someone I can trust. Not to some random warrant bearer.  We've wasted weeks of precious growth time, weeks of our lawyers' time, and a lot of our hard-earned startup cash.  All that is just to prove to some random dudes on the other side of the planet that they have NO RIGHT to sell anything related to our company!  Why do we even need to prove that?  In any decent legal system, the plaintiff must prove that he has rights to their claims. How can one operate in a system like that and sleep well at night?

If you are an #entrepreneur read this story to do your diligence when selecting an #accelerator: “Lacey Hunter thought all was well as she put her startup through the three-month #Newchip accelerator. Then the organization filed for #bankruptcy in May 2023. Things went from bad to worse later that year when she discovered #warrants of her company — rights to buy an #ownership #stake — had become part of the proceedings, which ultimately forced her to shut down her company.” #entrepreneurship #startupadvice #duediligence #risk #caution #investing #stakeholders

"The now-defunct Austin accelerator had filed for bankruptcy amid employee and customer discontent. The court has since ordered the company to auction off the warrants it held in more than 1,000 of the startups that went through the accelerator program. Normally, private companies like startups have control over which investors are allowed to buy shares and the prices they pay. But the bankruptcy court, which works to restore creditors rather than equity holders, isn’t allowing Newchip’s startups to exert that kind of control. Instead, the auctions are ongoing, with the first tranche already sold and upcoming tranches expected to be sold this spring and summer." It is not news that accelerators vary widely in quality. What this incident highlights is that a bad choice (ok, a really bad choice) can actually be fatal to your venture. There are "fixes" to the warrant terms that could address the issues created by this accelerator bankruptcy, but the reality is that ventures entering accelerators rarely have the legal firepower or bargaining leverage to get those changes.

There are several options to get money for a new business or a startup. 'Incubator investors' are groups that support startups, but they might have different ideas from yours. 'Traditional lenders' like banks can give loans. Many startups, about 38%, get money from their 'friends and family.' 'Angel investors' are people who give money in exchange for a part of the business. Lastly, 'crowdfunding platforms' let many people give small amounts of money; in return, they might want the product once it's made. #Startup #Entrepreneurship

As a legal expert who works closely with investors, I've seen many startups feel stuck during the fundraising stage. It's a complex process with numerous considerations, and it's natural to want to make the right moves and ensure success. The key is to build confidence in your fundraising strategy. Seeking guidance from experienced individuals can help ease your concerns and boost your attitude. Based on my experience assisting startups and investors, here are some strategies I recommend for startups like yours going through the fundraising stage. #legalexpert #legalexcellence #investorguide #legalcircle #startup #fundraisingtips

Imagine you are a pre-revenue #fintech startup who is raising funds for your #startup.  How to think about traction when you are Pre-Revenue? One of the critical roadblocks which early-stage pre-revenue startups face is the lack of "traction" that the founders are able to showcase to their #investors. However, does traction only represent revenue/ paying #customers, or are there different metrics which represent traction? ** Why is Traction Important to Investors? In simple words, #traction is nothing but a metric that validates the chances of success of a startup, while the inherent risk in the #business declines. It is proof that your #product/service is working. The founder starts building his business from scratch on the basis of "reasonable" assumptions and these assumptions represent #risk. Now one of the reasons #venture fails is the foundations on which assumptions are built are wrong Hence, traction is nothing but evidence that the assumptions made by the founders have been proven reasonable. ** What does Traction represent? Generating #revenue is not the only metric that represents traction. Traction can be represented by building an MVP - carry out an experiential program / study around it and report the findings as traction. Alternatively, building a prototype can overcome technical challenges. For a fintech or a #healthtech company, traction could be obtaining a regulatory license and working with experts which could serve as the "moat" of your venture. ** In addition to active users and exponential growth, these metrics act as catalysts for investors to see the founders are aware of underlying risks and working on ways to improve their #businessmodel. While the origins of the word "traction" can be traced back to the engineering discipline that describes tension/friction created by a pulling force, in the startup world it remains an important concept on which #funding decision seems to be dependent these days. #investment #venturecapital #fundraising #oaksprouts

There is no Funding challenges for startups as it was before. The landscape for startup funding has evolved significantly in recent years. While securing funds was once a formidable challenge, it's no longer as daunting as before. The rise of angel investors, venture capital, crowdfunding, and innovative financial instruments has created more avenues for budding entrepreneurs. Additionally, a growing emphasis on fostering entrepreneurship means governments and institutions increasingly support startups. While challenges may persist, the narrative has shifted from "no funding" to "accessing diverse funding options." Startups today have a better shot at turning their ideas into reality, making the entrepreneurial journey more attainable than ever before. #mycoachmycompass

🚀 Warning to all startup founders! A recent TechCrunch article reveals a shocking story of how some founders thought they were joining an accelerator program, but instead lost their startups. 😱 The article highlights the importance of doing your due diligence before joining any accelerator program. It turns out that some programs may not have the best intentions and could potentially take control of your startup without your knowledge. 🤔 As a founder, it's crucial to thoroughly research any program you're considering and ask tough questions about ownership, equity, and control. Don't let your hard work and passion go to waste by falling victim to a predatory accelerator. 💪 Remember, your startup is your baby. Protect it at all costs! #startups #accelerator #due diligence #founders

Trade-offs to secure funding could make your startup uninvestable. “This cap table has one giant red flag: The investor base owns twice as much as the three founders combined do,” #vcfunding #captable #foundershares #investing #startupfunding