Welcome teams, it’s time to get real…
Once all the applicants have been scored, the top seven teams are sent invitations. The recruitment process is, however, not over at this point.
Oddly, just because a team has taken the hours required to fill out an application, including shooting videos, and in addition has spent at least an hour talking to the Managing Director, many teams have second thoughts about the program.
The invitations are the first point in the process where the teams are asked to sign a contract. The contract is a Participation Agreement with an attached Stock Purchase Agreement. For most of these first-time entrepreneurs, this is the first big legal contract they’ve had to read and sign. The invitation is also at this stage that the full set of details of the investment structure is unveiled to the teams (outlined below). All of this is daunting to many first-time entrepreneurs.
Teams are encouraged to have these documents reviewed by their lawyers, and most lawyers have no experience with business accelerators, and as such are not encouraging about these contracts.
The terms of the contract are (generally) not negotiable.
Learning: For the first cohort, the “not negotiable” language was not provided. The contract was reviewed by seven different lawyers, and each asked for something unique to be changed, none of which was significant. In the second cohort the contract was “not negotiable”, and no teams asked for changes, but three arrived on Day 1 unprepared to sign the contract, with questions that should have been asked in the prior weeks, but deferred due to the interpretation of “not negotiable” meaning “don’t ask for changes or clarifications”. Since Fledge3, all participants are required to sign the Participation Agreement within 10 days of receiving the invitation, ensuring that they are truly going to participate in the program. Even then, many fledglings do not fully understand the redeemable equity terms of the Stock Purchase Agreement.
Timing
The invitation period takes 2-3 weeks. The invitation include a deadline for the invitee to commit to attending, and a second deadline for signing the contract. These should be as short as possible. Days for the email commitment and no more than 10 days to sign the contract.
Despite being non-negotiable, and despite the contracts being based on the TechStars contract, written by lawyers at Cooley, it is not uncommon for invitees’ lawyers to ask for changes.
Learning: The only changes are for invitees with significant revenues or existing investors. For them, the equity ownership and redeemable equity is negotiable.
Expect at least one team to decline the invitation. Every session has seen at least one team do this. After all the work to sort through the applicants, you will get frustrated if not angry at that setback.
Learning: It’s best to send out eight, if not nine invitations, with the eighth and nine including language about the invitation being contingent. That way there is less time lost when an invitation gets declined.
Learning: It’s best not to reject the eighth through twelfth applicant on the final list until all seven invitations have been accepted and all seven Participation Agreement are signed. What has never worked is rejecting an applicant in one week only to send them an invitation a week later. No one likes being rejected. See Fledge3, and its very short list of just four fledglings.
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