Startup incubator AngelPad will offer applicants an additional $100,000 in funding when they enter the program, bringing the incubator’s total investment in each of its 15 or so startups up to $120,000.
Startups entering AngelPad have to decide whether they want to accept the additional funding right after they are accepted to the program. An investment that early could take advantage of a startup that doesn’t fully understand its own value. But AngelPad founder Thomas Korte said the investment was very “founder friendly” because the founders didn’t have to give up a significant percentage of the company for the investment.
“The founders we have coming in are all pretty savvy,” Korte told VentureBeat. “We negotiated on behalf of them. They give up a very, very small percent of the company.”
The incubator is offering a convertible note for companies — which the holder can convert to equity in the future. The terms are the same for every company, Korte said. So every company is given the same valuation and has to give up the same percentage of the company.
Some startups that have gone through incubators like Y Combinator have become success stories. Ruby on Rails developer Heroku was sold to Salesforce.com for $212 million, while apartment-sharing startup Airbnb recently raised $112 million at a $1.3 billion valuation. Korte said a vast majority of the startups participating in the upcoming AngelPad class have decided to take the investment.
Y Combinator also set up a recent program similar to the AngelPad program called the Start Fund. DST partner Yuri Milner and super-angel Ron Conway offer blanket investments for Y Combinator startups as part of the program. But Korte said AngelPad isn’t copying Y Combinator — it’s simply the direction the market has taken, with startups demanding early capital.
The funding comes from two venture capital firms that Korte would not disclose. He said he wanted to make sure each startup had enough capital to grow as quickly as possible while in the program. That could include hiring contractors or getting advertising on sites like Facebook and Google early in the life of the company.
“We wanted to get some money to them earlier, when we decided to do this we looked at all the companies that went through AngelPad,” Korte told VentureBeat. “We looked at the companies that had some funding before being accepted, we’ve seen it really makes a difference through the first three months of the company.”
AngelPad plans to limit its classes to 40 founders, Korte said. The incubator plans to work with two classes of around 15 companies each year. “Scaling mentorship is difficult,” he said. “We don’t have immediate plans to expand that. We get very involved with every founder.”