(Part 2 of the Founder Briefing Series)
The bootcamp involves a number of agreements between you, your co-founders, and JFDI. The first of these agreements is called the Founders Agreement. This agreement is a contract between you, your co-founders, and JFDI. If you want to attend the bootcamp, you must sign this contract. In this contract are a number of promises. By signing the contract, both sides agree to keep those promises, and to accept the consequences if they don’t.
In this post we explain the details of the Founders Agreement.
JFDI will invest in your startup.
The Founders Agreement commits you to your co-founders and to JFDI. A sample agreement can be found at http://www.jfdi.asia/terms/. As in any contract, both sides get something of value. You get money and mentoring. JFDI gets equity – shares in your business.
One day, that equity will be worth something – we hope! We expect that in each batch, one or two startups will be exceptionally successful. That is the gamble we take. We accept the risk that your business may fail. In the worst case, we all will have learned something: that a different approach will be needed in the future.
We invest a cash amount of S$25,000, and an intangible collection of resources, experiences, and opportunities that we value, somewhat arbitrarily, at $150,000.
The money is not meant to make you rich. It is intended to cover most of the living expenses of the founders during the time that you are in Singapore.Singapore is not cheap.
The intangible component comprises the time and energy we put into working with your team. This component, more so than the cash, may the difference between the success and failure of your business.
We teach skills which will be useful during the course of the bootcamp and after.
We offer an experiential introduction to business and entrepreneurship.
We teach customer development, product development, and business development.
We invite dozens of mentors to work with you one-on-one to refine your concept, reach customers, and raise funding.
We invite over 100 early-stage investors to watch you pitch on Demo Day.
We help you negotiate term sheets and close your first round of follow-on funding after Demo Day.
Do you need this help?
JFDI, like other seed accelerators, is designed for first- or second-time founders who know that starting a company is not easy, and appreciate getting some help and camaraderie along the way. If you’ve done it before, and have raised millions of dollars and exited for millions more, then maybe you should sign up to be a mentor instead of a participant!
In return for our investment of cash and sweat, we join you as a shareholder, at a percentage between 5% and 20%, depending on the valuation of your business. We don’t much care what the specific valuation is, as long as it’s consistent with the valuation for other teams. We don’t care where the dots end up, as long as they fall on the same line. Most mature teams with traction and users will be below 10%. If you have raised funds already from professional investors, or can explain why yours is a special case, we can go below 5%.
You and your co-founders want to turn your project into a business.
We have encountered teams in the past who apply to JFDI planning to quit their jobs, hoping to work full-time on their project for three months. Yet, after they have finished building the product, they plan to go back to their jobs or to school.
JFDI is not a paid sabbatical or a grant for developers to work on an art or science project. It is an accelerator program for entrepreneurs to found a startup, which will consume their lives for several years.
Now is the time for everyone on your team to clarify expectations regarding the project. Do you understand how committed your co-founders are to business? Are they making any promises that they won’t want to keep? Are you?
For example, we require that founders be present in Singapore during the course of the JFDI bootcamp, and that they spend a lot of time in Singapore for the three months after the bootcamp ends. Some people will want to do this. Some people won’t.
Demo Day is not the end. It is the beginning. Fundraising usually takes several months after Demo Day, so you should be prepared to stick around or repeatedly visit Singapore to talk to investors here. If any core members of your team will be unable to be in Singapore until that happens, you need to talk about that now.
The typical JFDI team have already quit their jobs some time ago. They have been working on the startup for months if not years. If your teammates are still only part-time on the business, maybe they don’t believe in the business – or in you, the rest of the team.
Our cash investment should be sufficient to cover the expenses of three individuals in Singapore for a few months. If your team is larger than that, or if you find yourself spending more money than you expect, you and your co-founders may need to invest your own money into the business.
Will you do that?
Investors expect you to put not just your time but your capital at risk. That’s called putting skin in the game. If your co-founders are not willing to invest their own money in the business, you should read that as a sign that they are not really committed. Ideally, you and your co-founders should have a discussion – even before the bootcamp begins – to understand how much of your personal money you would each be willing to lose on this venture, should it prove unsuccessful. You should also talk about the length of time you would each be willing to spend working on the business without a salary. Everybody is comfortable with a different amount of risk. JFDI too has a risk preference: we like to work with founders who are committed enough to the business that they are willing to risk a significant fraction of their life savings, and go two to three years without salary, to realize a vision of the future. Many visions are not compelling enough for a team to accept those kinds of risks. Is yours?
If the vision is not compelling enough for the founding team to risk their own time and money on the business, then the team will probably not be able to find investors who are willing to risk their money either.
The business must be incorporated in Singapore.
If you have an existing business which is incorporated in a different country, we require that you reincorporate the business in Singapore. The existing business will become a wholly owned subsidiary of the Singapore entity. You can transfer the ownership structure to the Singapore company so the new business is logically identical.
If you subsequently raise funds from investors who require that you reincorporate in another country, that’s okay. We’ll cross that bridge when we come to it.
It follows that you will also open a bank account for the business in Singapore.
The business must be free of birth defects.
What do we mean by “birth defect”?
Maybe one or more of the co-founders do not intend to work on the business full-time; they may have numerous other commitments and they may believe that they will be able to meet all of their existing obligations and start a new business at the same time.
Maybe one of the co-founders has a fundamentally anti-capitalist life philosophy and does not want their startup to make profits or take external investment.
Maybe the founders care a lot about making a working proof of concept or impressive work of art, but don’t care if anybody uses it or pays for it.
Maybe the business depends on a core technology which turns out to be owned by one of the previous employers of one of the founders, and that employer won’t license it to the startup.
Maybe the business depends entirely on the cooperation of another company, but that other company won’t guarantee its cooperation. This may be true even if another company is owned by one or more of the co-founders, but those founders are not willing to reincorporate that company into the new entity.
Maybe some of the founders are an app development house, used to doing outsourced work for clients, and they want to launch an idea of their own as a side project through JFDI while still serving clients in the main business.
Maybe an angel investor (who won’t be part of the management team) has already taken a substantial equity share, leaving the operational founding team with < 50%. Over time, with dilution, the founders may be under-motivated and may walk away.
These are standard terms.
We use a valuation price list a basis for determining the equity percentage we ask in your company. The offer we make to all JFDI investees is based on this price list. We don’t care where the point falls on the graph, as long as it falls on the same line as for all the other startups. That is the only way to be fair to all parties.
We invest in so many startups that if we started making exceptions we would never see the end of it.
Next Article: Changing Gears from Engineer to Entrepreneur