Adeo Ressi, a founding member of TheFunded, is launching a new funding model to spur investment in startups and encourage investors to give up the cash needed for getting these startups up and running. A four-month training program called the Founder Institute, this new incubator is designed to attract investors, according to VentureBeat.
The Founder Institute appears to be a direct response to the poor activity many VC firms were experiencing in the past eight months, after the economy took a turn for the worst. So what’s so enticing about the Founder Institute?
Here’s how it works, according to VentureBeat:
Specifically, the institute asks participating founders to contribute warrants providing the option to purchase 3.5 percent of the company at the time of its first funding. Now the institute is setting aside 10 percent of that warrant pool for investors — the first 20 investors in Founder Institute startups will each get 0.5 percent of the total pool of all companies.
I personally see this particular incubator program as being somewhat akin to several of the incubator programs we saw at the tail end of the dot com boom, just before it crashed. Whether or not this new format appears to be a new way of throwing a bunch of ideas at the wall and seeing which ones stick or a new way of managing one’s downside risk, time will tell.
But the likelihood of enough of the Founder Institute’s startups selling for enough money to earn the investors 10 times their initial investment is a risk they’ve got to be willing to take. So far the Founder’s Institute has about 80 potential investors that may take part in this new program.
That’s a good amount of capital to work with for a four month program. As far as the other details go regarding the Founder Institute, the resources that will be made available to the startups within the four months will need to be focused and readily employed for each startup.
The relationships the investors may have with each startup may also be limited due to the nature of the Founder Institute’s format.
In speaking with several venture capitalists and founders of incubator programs, I’m finding that the incubator approach is gaining a great deal of interest. Should Ressi’snew model work, I’m sure we’ll see more activity for programs that have similar concepts.
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