This article in today’s Xconomy outlines a new “pay-to-play seed fund competition” (my words) created by a new firm called Revolutionary Angels (“RA”). From what I can tell their program works like this:
- ~100 companies apply (apparently per quarter)
- those companies pay $5K each to apply
- thus RA “raises” ~$500K per quarter
- the 1st place winner gets a $250K seed investment from RA at a $2.25M pre
- the 2nd place winner gets a $50K seed investment from RA at a $450K pre
- so $300K gets invested, and the other ~$200K goes to RA operations/overhead
I don’t know the folks involved in RA (which perhaps reflects well on them ;-) ) so I can’t speak to their intentions. My knee-jerk reaction though was negative, as I have an allergy to anything that consumes precious start-up capital that does not generate product progress, customers, or revenues.
RA argues that the $5K is not simply a lottery ticket because their folks will add value to each applying start-up during the application evaluation phase, including a detailed written commentary on their business plan(s). They also have a list of sponsors and partners who can add value to the start-ups. Whether that value is worth $5K in precious cash we’ll need to wait and see.
It’d be interesting to see if there could be a way to marry start-ups with sponsors so the often-impoverished founders aren’t shelling out cash they usually don’t have.
It’d be interesting to see if they could get their operating costs lower, which could lower the application fee. We run each TechStars program with less OpEx than that, and that includes office space during the program for 30+ people.
It would be exceptionally interesting to figure out if they could distribute the equity participation in the two winners to all the people who pay into the fund. Although this is a legal quagmire, if your $5K got you a tiny piece of the two investees, it might pay the investment back; as-is, AR gets 10% of the two winners with no outlay of their own cash.
I’ll be watching the program closely. I hope it can be a positive one for the ecosystem.