HN Explorer

Ask HN: What exactly happens when accelerated startup fails?

5 points by nmbdesign ↗ HN
Hi, just got an offer from accelator for our idea/project accelaration and Im quite dumb about how things work in financial side of things. Will we owe them 20k seed capital if in case something bad happens and we fail? How its usually handled? Thanks!

9 comments

[ 4.7 ms ] story [ 24.0 ms ] thread
kposehn
Well, typically accelerators take a percentage of the company in return for the money they offer. Post the terms that they gave you here and we'll help review it. Of course, make sure that you are not bound by some NDA or confidentiality agreement first :)
nmbdesign
its 15% equity and yeah, didnt have a look at official terms yet, but I guess my question is more generalized right now, you know
smileysteve
Just based on what you posted, I want to encourage you to consider the terms. $20k of seed is not significant enough imo to take such a large stake in the company.

Your seed stage needs to provide the founders enough income/resources that they can and want to do this full time - along with have some ability to hire out additional jobs over enough time (3+ months) to get an A round or have strong revenue producing customers. In the case that you need to hire an additional developer for 3 months, you'd be out of your $20k seed money.

nmbdesign
Thank you, I am gonna look through terms precisely, just wondering how it works/worked for other companies, cause I cant really find ANY info what happens if you fail in terms of seed capital.

And yeah, 15% is high but they say it can be "washed" during next round of funding Appeciate your information!

lun4r
Is the 20K convertible debt or as equity?
smileysteve
Your typical investment is just that, an investment.

Therefore, it is at risk and if the startup fails, the money is lost. Qualified/Accredited investors (non friends, family, fools) are required to have such high net worths/income to prove that they can accept these losses.

Even if it were debt, if it was not personally secured, (and there weren't any shady and extremely wasteful actions by the management), the company / startup has $0 in assets when it fails, and therefore can not pay its obligations.

Add'l info : Accredited Investors by the SEC must have 200k annual income and 1mln+ 'liquid' assets

nmbdesign
Thank you, so startup company doesnt have to pay anything back if they have $0 in assets and failed? Am I right? In a usual use case of course.
smileysteve
You are right.

The outside case for this is if you use your personal credit to secure an office building, car, or other loans (bank)