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TechStars Will Offer $100,000 to Each of Its Startups

Posted by: John Tozzi on September 21, 2011

Acceptance to startup accelerators such as TechStars or Y Combinator is something like getting into the Ivy League of entrepreneurship: They’re highly selective places where startup founders can work intensely and network with leading tech entrepreneurs and investors. Now, the acceptance letters come with scholarships too.

TechStars (disclosure: Bloomberg TV produces a reality show about a group of its startups in New York) today announced that it raised $24 million from venture capitalists and angels to offer every new company it accepts $100,000 in financing as a convertible note. That’s an optional offer on top of the $18,000 investment for 6 percent equity that TechStars makes in every company it accepts. (Convertible notes are loans that convert to equity when the startup raises its next funding round or gets acquired.)

The announcement mirrors the offer by investor Yuri Milner and the SV Angel fund to give every company accepted into Y Combinator a $150,000 convertible loan. The difference is that TechStars itself is making the offer, rather than an outside investor.

TechStars, which operates startup bootcamps in Boulder, Boston, New York, and Seattle, funds about 60 companies a year. David Cohen, TechStars’ founder and CEO, says that the new money coming into TechStars reflects investors’ catching on to participants’ success. “VCs nationally looked at TechStars and looked at what was coming out of it and decided it was a good investment,” he says.

He expects most startups that take the offer will use it for expenses during the three-month TechStars program and in the months immediately after, before they’ve closed deals for further investment. “A lot of them were going out and finding $100,000 with early investors,” he says. “It’s fairly easy for most of them to find that kind of money, but it’s always work.”

Cohen also says the offer may make TechStars more attractive to people who have families, full-time jobs, or higher living expenses than young, single founders. People already earning higher salaries may look at the risk of leaving their jobs and say “it’s not enough for me to make the jump,” Cohen says.

The investors putting up the $24 million include Foundry Group, IA Ventures, Avalon Ventures, DFJ Mercury, SoftBank Capital, SVB Financial Group, RRE Ventures, Right Side Capital Management, as well as TechStars alums and other angels.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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