Cofounding in Exchange for Equity

Questions from the Houston Chronicle:

• Why does the startup atmosphere in Houston lag Austin, New York and California?
  • Possible Answer:
    • Houston lacks bottom-up accelerators
    • According to Paul Graham (founder of Y Combinator), alumni of YC are the best benefit that YC has to offer. So perhaps one of the things Houston lacks is a history of entrepreneurs. Hopefully the nascent hub "Station Houston" will help but only time will tell. [[1]]
• Are these companies using innovative new techniques that could help?
  • Possible Answer:
    • 70% of startups fail, and yes, its often because of stupid oversights that an experienced leadership team could avoid. However, the spirit of innovation is having new insights into each aspect and having the same people overseeing each seed stage company could just create clones. So yes this could help, but it may not be perfect.
    • Giving so much equity to a single entity also could make it hard to raise VC funding later on. Fannin does provide much of its own funding, but because it's at such a great cost, there is an effective cap on how fast growth can occur by only using Fannin's Venture investment.
    • They may also not be able to help very quickly. Though Fannin is on its way to raising 10 million to fund 15 more startups. [2] Those startups will receive their help over the next decade (or more) because the focused attention promised by cofounding means there's a limit on how many startups Fannin can partner with at a time.
• Are there other companies doing similar things for startups?
  • Possible Answer:
    • To lesser degrees, startups like Y Combinator, Techstars, 500 startups, etc. do take equity. In the case of YC it's only 7% though, so most of the ownership is still left to the founders. There don't seem to be many big accelerators doing similar things but that may also be because the promise of cofounding limits how many startups can go through the program at a time.
• Are there other techniques that could be used to help startups in Houston?
  • Possible Answer:
    • As stated earlier, more connections to people who have "done it before" could be really beneficial.

Pros and Cons of Startup Accelerators

Businesses that follow this model

Fannin Innovation Studio

Cofound.us