Founder's Co-Op: Between VCs and Angel Investors

Paul Graham, founder of Y Combinator, recently wrote about how the traditional venture capital model is broken, at least when it comes to Internet startups. Eight to ten years ago, it often took millions of dollars to launch an Internet company. Now that same company can often be launched for just hundreds of thousands of dollars. Typical VCs shun this level of investment and there are not enough Angel investors, so there’s a need for new organizations to spring up and take chances on earlier stage companies.

One interesting fund to do just that is the recently launched Founder’s Co-op in Seattle. Started by Andy Sack and Chris DeVore, serial entrepreneurs whose most recent venture was Judy’s Book, Founder’s Co-op has a new twist on Angel investing. Like other funds like Y Combinator, Founder’s Co-op invests anywhere from $10,000 up to $250,000 in a startup. But here’s the new idea: every founder contributes 5% of the equity in their company to the Founders Pool. In exchange, the founders receive an ownership stake in every other company funded by the Co-op in that calendar year.

This pooled equity interest creates a financial incentive for each company to share information and support each other. Founder’s Co-op also provides mentorship and networking opportunities as well as drop-in desk space. Much more than an investment fund, this could turn into a tight community of entrepreneurs. If you’re thinking about starting an Internet company in Seattle, this is something you should definitely consider.

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Comments

[Chris DeVore:]

Hi James - just stumbled across this, thanks for the nice writeup. I've added a link to this from our "news" page (founderscoop.com/news....) to spread the good word. Cheers! Chris

2008 May 29 06:46 PM

[Mad Hedge F...:]

These are indeed dark days for Silicon Valley’s venture capital industry. With the exit door slammed shut for years to come, new money is staying away, avoiding the high risk multiyear lock up. Angel investors have gone back to heaven. The deterioration of the economy has been so rapid that the rationale for many start ups is no longer there. Many web 2.0, next generation models for social networking sites, video sharing sites, wikis, blogs, and folksonomies never made it to profitability, and will be swept away. Expect a lot of once hard to get office space to become available for cheap on Sand Hill Road soon.

Feb 22 12:28 PM