24 Nov techMultiplier Will Give Your Startup an Office For Equity
It may sound a bit crazy, but it’s true.
The new program, backed by a Dallas real estate developer and 3 tech entrepreneurs/executives will give you a 1-year lease of some prime DFW office space for some % of your company (depending on valuations etc).
No cash, no official program of mentorship, no demo day in front of a bunch of investors… just office space. I have to admit on the surface it doesn’t look too attractive to me, so I reached out to get some more details. Dennis Cagan from techMultiplier was kind enough to submit to my skeptical interview.
What type of tech startups is techMultiplier hoping to attract?
We are looking for lean, smart companies with disruptive ideas and technology in software, web, mobile apps, social media, cloud-based and other emerging sectors. We will even consider non-tech or bio-tech if we see the potential. Our space is not suitable for lab work or manufacturing however.
Can you give a theoretical example of a techMultiplier deal?
A theoretical example might be as follows. If a company has a valuation of $2MM and there are 1MM shares fully diluted that would be a valuation of $2 per share. If the market rate for a one year lease for 1,000 sf was for example $17,000
we would apply a risk discount to the $2/share – for example 20% and would therefore take 4,375 shares for full payment of the one year lease. (e.g. $2 – 20% = $1.60. $17,000/1.60 = 4,375) [apparently there was some confusion amongst the partners on this point… I’m still waiting for their updated theoretical example and will add it here when they respond.]
Update from Rohit Mehrotra of techMultiplier:
We evaluate all opportunities as if “WE” [founders / investors / mentors] were investing hard cash. The primary criterion for investing is:
a) Can “WE” meaningfully help the entrepreneur by bringing them real customers / revenue. If we cannot, then the start-up is not a good candidate for us.
b) Are “WE” willing to invest our time in making this company successful. Most of our investors/mentors are very successful businessmen, and time is the most expensive commodity they have.
c) If the qualified start-up can benefit from saving money in the short term by using their equity for space, then TechMultiplier has the real-estate available to help them. The deal structure is simple: If you are going into a space where the rent is $20000.00 / year and your current valuation is $2MM, then for one year of space TechMultiplier will own 1% of the company. We obviously want companies who have a promise to grow substantially in the future, and we can help them with their real-estate needs for a long time.
From my personal experience “Mentorship” is a highly misused word. Every VC or Incubator wants to talk about their mentorship program, however most of them have no matrix to quantify that. In order to be a Mentor at TechMultiplier, a person has to effect the success of the company in a quantifiable way. I have walked away from good startups / ideas which I felt we could not help build. We expect to participate in all future rounds of funding for the companies that are accelerated as part of the TechMultiplier venture. Ideally, these companies never have to go out looking for money once they are part of our program.
Real Estate for equity sure is an extraordinary proposition. Why would startups value office space over cash when an office is one of the last things a tech startup needs in its early stages?
If in fact a company does not need space that that is great. Garages and kitchens are famous for launching great ventures. However, at the point that you need a productive place to house your enterprise and valuable team members, and you just recently sweat bullets to raise some capital in this economic climate, why would you want to expend your valuable cash to pay for office space when you could use stock as currency – it’s just like actually raising more money. Whenever an early-stage company finds that cash is more scarce than equity they should consider bartering equity for services whenever possible.
Other programs available to startups include cash investment, office space, mentorship, networking and investor connections for roughly the same amount or less of equity, why should a startup choose techMultiplier?
We have a very high regard for all the programs in town that are providing support for entrepreneurs. We are aware of many of them and they offer excellent value to start-ups – although few of them invest enough money on their own to get a venture past concept. However, none of the ones that we are aware of in our community offer true Class A office space in prime commercial locations on anywhere near the scale of techMultiplier. We can supply from a few hundred square feet up to as much as they might need. Please do not think only in terms of your 3-person start-up. Once a company has out grown 500 sf in an incubator, or congenial common or shared meeting space, or a great training program, and they raise a few hundred thousand dollars or more, and they need to start running like a real enterprise, they will need actual office space. This is not only about the raw start-up. It’s also about the slightly later stage enterprise that is starting to actually accelerate. In fact our group may also add capital up to $1MM, but that comes after they are tenants and showing progress. No one in town with a true interest in helping entrepreneurs succeed would withhold their connections and networking. So these companies should continue to draw on all the counsel and introductions they can get. We will of course add ours as well.
It seems you’ve already attracted some detractors in the community for your “unique” proposal. How do you respond to the suggestion that it may not be in fact a great deal for startups?
I have not heard anything negative about what we’re doing at this point. Having started over a dozen companies myself I have seen my share of detractors. Some people make their mark through criticism. I have not ever found that particularly beneficial, unless it was truly offered in a very constructive way. As far as unique is concerned, if there is anyone or group anywhere in the USA offering 160,000 sf of prime office space for nothing but stock I have not ever heard of it in my 43 years in this business. I consider this unique. It is a huge scale offer and a potentially enabling differentiator for the DFW Metroplex in nurturing small technology companies. At various stages of growth from start-up to viable enterprise a company goes through several cycles where either stock or cash can be more valuable than the other, depending on how much cash you have at the moment. It makes sense for a business leader to pay for things with their less valuable commodity – in other words, barter for stock when you need to conserve cash. It’s been going on for centuries.
Where can startups go for more information and how to they apply to your program?
They can email us whatever documentation they have on their venture. This can include: executive summary, business plan, financial projections, cap schedule, PowerPoint, product road map, team bios, etc. Including a napkin if that’s where they wrote it down. Our team will then evaluate the information in the same way as any other investor. firstname.lastname@example.org will work. [You can also visit www.techmultiplier.com for more info and to download their informational flier.]
I appreciate your candidness/openness and best of luck!
Thank you Bradley. We appreciate what you are trying to do for our community. We have beautiful office buildings in Dallas, Addison, Plano and Ft. Worth. Current tenants in those buildings are paying real rent from $15-24/sf/yr for their space. We’d love to see some early-stage enterprises become their neighbors without breaking the bank.
So what do you think? Will you be applying to techMultiplier with your startup? Why or why not? Let us know if the comments!