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Simple. Brilliant. That is Paul Graham's famous Equity Equation from a 2007 post.
But does that equation hold up in 2012 and when you are located anywhere outside of Silicon Valley or maybe one or two other locations that have lots of startup capital?
More or less, this was a question that bounced around Toronto while Paul Singh from 500Startups was in town.
Paul conducted his own research and arrived to OFFICE HOURS wondering about the stakes that some startups give to local incubators and accelerators (where "local" means any place outside of Silicon Valley). "If a startup gives up too much to a local incubator, it gets tougher for us because we like to invest in the founding team." said Singh. "If a local incubator takes a big slice and then we come in, by the time we get to Series A, the Founder's interests might evolve out of alignment. They might be offered an aqui-hire deal and not have enough incentive to stick around for a bigger exit." he added.
The Wall Street Journal sounded out the critics last May. But as Jed Christiansen points out in his Five Baseline Assumptions on Seed Accelerators, "All accelerators increase the chances of a startup's success." So, using Mr. Graham's equation, if you sell 10% of your equity to an accelerator, you’re better off provided that your business is (100/90 = 1.11) 11% more valuable than before you went through the program.
When you are sitting almost anywhere except Silicon Valley, where the odds of follow on success are so depressed to begin with, almost any connection to hope can easily seem to make your startup 11% more valuable. The best advice is to take a hard look at the exits that have evolved from your target program and to research the experience and quality of the connections in it's mentor network.
But maybe it is easier than that? If TechStars, 500Startups and Y-Combinator are taking between 4 and 7%, why would any other accelerator be worth more than 4%?