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TinySeed applications are live
By
Matt Wensing
January 18, 2019
TinySeed
Finally they revealed the terms, and they are asking for 8-15% equity :O
I'm surprised because they were talking for months about doing something different, based on revenue, etc. Now the only difference is that they accept remote teams ¯\(ツ)/¯
Other differences:
We had 150+ conversations and spent months working on it. Equity is the only way to align values over the long-term, rather than making an investment that winds up feeling like a loan.
Hi Rob,
I was very excited about TinySeed but after the new info I am a bit confused about the value to founders. The entire focus seems to be about terms and what TinySeed will get etc. especially in the FAQ.
Where are the details on what the companies will get ? You mention a great set of mentors and a weekly mastermind call, but how will the time be structured? There is not a single question in the FAQ that is aimed at "what specific benefits will founders get that will help you succeed".
In my experience, random calls to mentors is very different than structured guidance, and understanding the specifics of each company. As first glance, it seems like a mentor network than specific guidance that will help me succeed. I would love more details on this aspect.
I've been running online and in-person training and building online and in-person communities for more than a decade, with MicroConf, FounderCafe, and Zen Founder. I've been part of (and have run) multiple masterminds that have lasted 5+ years and provided an enormous amount of value to the founders involved.
The time will be structured such that founders get the most value from it, and that may wind up looking different for different founders. But I know how to do this - I've been doing it for a very, very long time to great success. Offering up a minute-by-minute schedule for the calls would not be worthwhile, in my opinion, as one of the only thing constant with startups is that you need to adjust quickly.
I'd expect we'll start with community and mentoring models that I've used and that I know work, and adjust them as needed. It's in our best interest to accelerate growth so you know myself and Einar will be watching this very closely.
Thanks for the prompt reply Rob. I appreciate the set of expertise you have with you and your amazing team. I was just hoping for the level of transparency that YC manages to provide even for folks who are not in YC. But being a new initiative, I know this will become clearer with time.
Just so you know where I am coming from, I interviewed with YC partners two months ago. Now I have to decide whether to apply with TinySeed or re-apply to YC since doing both doesn't seem optimal. That's the main reason I am asking for more details :)
For those of us who focus on running our business, not on VC terminology and such, can you explain how equity and dividends works? When you say it's 1 year, what happens to that equity after the year? And does that mean an LLC won't do? We have to convert to a Corp? If so, does that mean the owner/partners must then be on payroll, have HR services, etc, etc?
Just trying to get a clear picture. Many of us run as LLC partnerships with subcontractors, to keep things simple and expenses down. If we have to incorporate and do payroll and HR and all that, it's going to make things much more difficult, time-consuming, and expensive.
Equity is a % of ownership in the company. So if someone owns 10% equity in your company they own 10% of your LLC. Dividends are simply money pulled out of the company above your salary.
An LLC works great - it's a nice pass through entity that doesn't have double taxation like a C-corp.
If you're going to build a 7- or 8-figure company you will want to have payroll. Gusto is $39/month and handles almost everything except a few setup things you do at the start.
Thanks Rob. So just to make sure I'm understanding: you'd pay $120k the first year, in exchange for 8-15% of the business. Then after that first year is up, that's it? You're done, except for getting your share of dividends going forward? And you don't care if that $120k is put into paying 2 people or spent on marketing, or whatever? It's ours to decide what to do with it (if we're accepted of course)?
Correct, except we're going to be around for as long as you're in business, it's not like we disappear after the year. Einar and myself will still be around offering advice, intros, etc. like I currently do for my angel investments. The first year is when you'll be doing the accelerator portion: weekly (or bi-weekly) mastermind calls, office hour calls, etc. that ends after 12 months.
After the year, TinySeed would continue to get dividend payments from the company as you said, or a pro-rata share of a sale if you decided to sell the company.
Essentially, you can invest the funds we provide into whatever you want to grow your business - paychecks (up to an agreed upon salary cap), contract help, marketing, ads etc.
Hope that helps!
Very helpful, thanks Rob.
Sorry, I might be missing something, but how an investment fund with 10% stake can force the company to raise Series A?
Pressure. Pressure. Pressure. I’ve seen minority investors exert surprising control over companies (“we won’t fund your next round” etc.)
Ah, right, got that. Such a company should quickly hire a COO with some balls then ;)
btw - good job with TinySeed. Do you require for people that apply to have registered business?
No. But the further along you are with the product/business the more it shows you’re a founder who gets things done 😉
I think most people will undervalue #3, but to me this is the biggest advantage a founder has in taking a round from TinySeed.
Question: What is the fund structure? Do you have LPs? If so what is the expectation on fund duration?
Hi Rob, thanks for your super fast reply! I'm a big fan of your podcast.
Great to see that there are more important differences, we need more initiatives like this for sure, maybe my expectations were different because I thought the idea was also to avoid dilution when you are starting up, but I understand what you say.
Best of luck! :)
Appreciate it 😉
To clarify: we did not set out to build a model that avoids dilution - doing so is easy, it’s revenue based financing.
Our goal was to find a model that provides capital to founders who VCs won’t back in a way that gives those founders maximum optionality to raise future rounds (or not) and doesn’t suck so much money out of their company through revenue/profit sharing that it hampers growth, but also provides enough of a return that investors are willing to put money into the fund and not simply buy an index fund.
Thanks for the clarification, yes I've read about the pressure VCs get to return 3x within 10 years to LPs and why they only seek for billion-dollar opportunities, so it's good to know there is something in between for "the rest of us".
I would point out that Rob is not the typical vc. He was an indie hacker before this was a thing. He has a long history of bootstrapping businesses. In my opinion, most indie do not align with VCs, but I think he is trying to do it differently and I wish he succeeds
in my own experience, what VC can do for you is much more than just money, you can use their network, introductions, mentoring, guidance, etc. To make sure they are trying their best to help you out, in my opinion you actually do want them to ‘own’ part of your company.
Exactly. Mine and Einar's network + the reach of our mentors (tinyseed.com/people) is...extensive.
In addition, equity allows us to be in your corner for the long-term, rather than making an investment that winds up feeling more like a loan.
The other thing I initially recoiled from is the salary cap... I realize that they want to keep the startups competitive but if the company evolves over time I don't necessarily want a cap.
That's a fair first reaction, but keep in mind that:
a) our cap is pretty generous
b) dividends are more tax preferential than salary
and c) dividends are deducted from liquidation preference, which is awesome.
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Having attended many MicroConf’s I really like the concept of this. Rob out of interest are you looking for any (more hands off) investors for TinySeed ?
Can't say in public, but email einar at tinyseed dot com with the same question and he'll let you know ;-)
Ok great thanks Rob.
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The terms are good, and your mentor list is awesome, lots of people perfectly aligned with the indie hacker community.
The only sad thing is that it's not accessible for non-US companies!
Did you do this because it would have been too complicated to deal with non-US companies?
Yeah, we plan to expand outside the US, but for now we don't have the resources (read: money for lawyers) to navigate the laws of 209-ish countries. So we picked one to start, and plan to expand as soon as we're able.
Thats great that the opportunity is still open.i think anyone that is serious will make sure they are available us hours .
Has this changed since we sent in our application?first time ive read its now not for overseas cos
Hopefully that will change but totlly happy to make the move over the atlantic if needed
You don't need to move, just with this first batch you'd need to be able to attend meetings during U.S. business hours and have a U.S. corporate entity. It's a natural step to expect we'll expand to the rest as a next step.
I happen to start my SaaS company in India, but I do have a registered Delaware LLC in the US which is not connected with my current startup and is sort of not doing anything at the moment (I set it up when I was working in US for a FAANG, then decided to return to India). Can I still apply for TinySeed w/ the US LLC?
bookmark
Great terms, but having to be incorporated in the U.S. is a showstopper for us unfortunately.
I certainly love the initiative and terms seem more interesting than a usual 'investing route'. My project seems to fit into requirements, but moving my company to US -- no way that will ever happen.
I've been looking forward to getting the details on this! A little disappointed that the application asks for the secret sauce. I'm not willing to divulge these things on an application that I probably won't even get a detailed response on, but every VC seems to want these upfront. Shrug.
I'm curious what phase of the development are they looking for. I'm still in the initial phases - landing page completed, more detailed market research in progress, etc. Or are they really preferring those that have 'launched'.
Any stage, but the more progress you've made demonstrates that you are someone who gets things done.
The other big advantage to Tiny Seed is the network effect provided by the partners, mentors, and others in the group.