Since YCombinator came on the scene, a number of investors have also started to call themselves “startup incubators”. In Germany, there is a group of people who became quite successful with the ever-discussed copycat. Many of them have since gone on to become an incubator. The biggest ones are probably “Rocket Internet” and “FoundersLink” but there are more which may fall into this category. They basically have a list of copycat “ideas” which they would like to implement. For these ideas, they are looking for founders. I had a longer chat with one of these founders when I came in for an interview for a CTO position.
Interestingly, the CTO position was advertised as a co-founder position and therefore included stock options but also an “attractive salary”. So I was a little surprised when during the pre-screening interview, I was asked if I could also see myself working without a salary. As you can guess, the CEO/main founder does not work for a salary, either, even though it says “attractive salary” in all their CEO job listings. Not just that. It is expected that the CEO put in a significant amount of money from their own funds towards the startup, using a personal loan if required.
This would all be fine if the founder received the majority of stock. If you’re very lucky, you can get 60% but 50% is the standard. The other 50% go to the “incubator”. When I heard this, I was surprised but I said to myself: If the incubator provides a lot of money, this may be reasonable (still a bad deal for the founder but acceptable since no work has been done so far by any party). I was wrong. The incubator doesn’t have much money. And they’re certainly not giving it to the startup. They couldn’t even afford a decent programmer. Which also explains that they expected any other people coming on board to work for free as well. They were going to spend a little on the paperwork of starting a company, and a small chunk for a demo programmed by some agency. But anything more than EUR 20,000 was already a big sum.
I was puzzled. I asked the founder why he would agree to such a deal. He explained to me that there are only few big time investors in Germany and they invest in copycats only. (Is that true, Soundcloud?) These incubators are the only ones with access to these investors, the only ones who these investors will listen to, he said. So he’s giving away 50% of his startup for nothing but hope to be able to raise more later. I didn’t ask which side would give their options to that investor but I’d be surprised if it wasn’t the founder, ending up with much less than 50% after the first venture round.
Since the startup idea wasn’t the founder’s, I had a hard time seeing some passion for what he was about to spend his next few months or years on. And I couldn’t tell if as a CTO, I was going to be passionate about it because they wouldn’t say anything about the idea without me signing an NDA (which they never presented to me). As if I was going to steal it. His main motivation were stories such as “DailyDeal” who got acquired by Google. And he said that they could’ve never come that far without the big bucks (which may be true). So it didn’t seem much about implementing a great idea or building a great company. It was about getting rich by flipping over copycats. This model obviously attracts a lot MBA types who care nothing about the technical side or anything long-term. So I refused. I guess I can’t recommend this path to anyone who wants to build something that lasts. (I don’t even know if I can recommend this to anybody who wants to get rich.) And honestly, I can’t recommend working for them as a programmer unless you don’t mind that nobody cares about your work.