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Is 50k from Brandery accelerator a good deal (25k for 6% + 25k note)?

Seems slightly misleading because their main description says “We receive a 6% equity stake in each startup in exchange for $50k”, but their FAQ page says the first $25k is issued in exchange for 6% equity, then after 6weeks, you get the 2nd $25k as uncapped convertible note.

Doesn’t this mean they get upto double the equity stated? eg if you’re only able to raise seed at the same valuation you entered the program with, then the accelerator gets another 6% for the 2nd 25k, so they get a total of 12% for 50k.

  • Sounds a bit strange for sure. You shouldn’t be raising your seed round at 416K in any case. If you raise your seed as a convertible note for a 3-5mn cap, this note still remains. Now if you eventually do a qualified financing (priced round), say series A of 3mn at a 9mn pre, that is when their note converts. The only good part is that its uncapped.

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    • How does the note remain if I raise seed as a convertible note for a 3-5mn cap? Wouldn’t the 1st note have to convert to new valuation or does this mean I just have 2 notes which will convert separately when I raise a priced round later?

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  • That’s a good deal. They mention the note is uncapped. A $25k uncapped note is pretty founder friendly – should have little impact on cap table.

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    • Can you explain how it is founder friendly and will have little impact on cap table? I guess I’m viewing it as them getting much more % for 50k, as opposed to 6% for 50k that they advertise.

      Reply

      • An uncapped note will convert at your next equity round valuation. $25k into that valuation (which presumably will be w/in market) will equate to a very small %. So it’s more like 6% plus very small kicker via the warrant. See your point that it’s not just 6%. Net net though – it’s a top 10 accelerator – strong history – so I wouldn’t let the note bother me. Did you get in?

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  • The uncapped convertible works great if you hit it big. If you don’t, then you owe $25K.

    So it very much is different if your startup doesn’t get funded.

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    • That’s inaccurate. When co’s fail, convertible debt is not paid back. That is understood by all parties. Gosh – if they are thinking of joining an accelerator – they better try to “hit it big” (as you say).

      Reply

  • It seems like you are worried about the veracity of their investment pledge, and thus their integrity? If so, I wouldn’t stress it. It would be hard to make a quick readable top line advert that says “we do a tranched set equity round followed by a milestone-based second round with a convertible note.” As others said, the deal itself is inherently pretty good, as is the accelerator itself, and they clearly explain the terms in the FAQ which is well before the hot emotion of the deal-making stage, which indicates good honest practice to me. Best of luck with your startup!

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