Everyone knows it’s a tough time for startups raising money — for one thing, the first three months of the year saw the lowest number of venture investment since the late 90s. In response, Adeo Ressi, founding member of the controversial VC-rating site TheFunded, has introduced a new and unusual funding model to encourage hesitant investors to get back in the game.
Ressi, who is probably most familiar to VentureBeat readers as a critic of the VC industry’s excesses, finds himself in a rather different role now, trying to help entrepreneurs participating in TheFunded’s four-month training program called the Founder Institute to attract investors. The idea, Ressi says, is that when an investor funds one Founder Institute company, they’re actually making an investment in the program’s entire pool, which should reduce the risk involved.
“If you invest in one, you invest in all,” Ressi says.
Specifically, the institute asks participating founders to contribute warrants providing the option to purchase 3.5 percent of the company at the time of its first funding. Now the institute is setting aside 10 percent of that warrant pool for investors — the first 20 investors in Founder Institute startups will each get 0.5 percent of the total pool of all companies.
To be clear, this is separate from the individual investments that an angel investor or venture capitalist makes. It’s a bonus, of sorts, as long as their investment totals more than $50,000. And even though Ressi has been a critic of some investment deal terms (to the extent that he worked with Silicon Valley law firm Wilson Sonsini to formulate a more founder-friendly type of common stock called Class F), participation in the pool is “term agnostic,” he says.
Eighty potential founders are participating in the inaugural Founders Institute class, and Ressi estimates that 30 to 50 companies will actually get founded from that group. The institute will offer investors a chance to meet with the founders at special events on June 23, July 28 and August 25.