Techstars Chicago Accelerator

Techstars Chicago, in partnership with Long Chicago, is an early stage accelerator & venture fund. We are long Chicago and the Midwest. We back intensely committed founders with big bad ideas, and our mission is to be those founders’ most trusted advisor. Techstars Chicago is not industry or vertical focused - all ambitious founders are welcome to apply.

Techstars’ total investment of $220,000 is made up of two convertible investment agreements and a side letter. One investment is a $20,000 fixed-percentage convertible equity agreement for 5% common stock (on a post-money basis). Another investment is a $200,000 uncapped MFN post-money Safe. The side letter sets out certain rights Techstars needs in the future.

• $20,000 fixed percentage convertible equity agreement (CEA) for 5% common stock. When the company does a priced round of at least $1 million, the CEA will convert into common stock equal to 5% of the company’s equity (including the existing option pool), after all Safes and other convertible instruments have been converted alongside the round.  The CEA and Safe are diluted by any new money in the priced round, as well as any option pool increases. 

• $200,000 uncapped MFN Safe. The Safe will also convert when the company does a priced round of at least $1 million. It is uncapped, meaning there is no pre-determined valuation cap or limit on the valuation at which it converts. Instead, the Safe will automatically adopt the terms of the lowest cap Safe (or other most favorable terms, such as a discount) issued between the specific MFN start date (around the start of the class) and the priced round. For example, if the company issues a subsequent Safe with a valuation cap or discount (like a 20% discount, or a $8,000,000 valuation cap), then Techstars gets the benefit of such terms. 

• The side letter establishes pro rata, digital assets, and drag-along rights, as well as various regulatory and tax matters. In short, Techstars and your company will have an ongoing shareholder relationship that lasts long after the program. Accordingly, the company needs to (i) give Techstars the ability to invest in new financings, like a seed round, (ii) regularly send Techstars information on its key operating metrics, burn, and more, and (iii) fulfill specific obligations at the time of certain events (such as a priced round or an exit). 

Why these terms? We believe in aligning our interests closely with our founders. Some investors only receive preferred stock, and nothing is wrong with that. But by structuring our offer so that the CEA in common equity, Techstars naturally sits on the same side of the table as portfolio company founders. Our return on investment happens when our portfolio companies have a successful outcome instead of receiving the return in priority over the founders and their employees. The uncapped MFN Safe is inherently founder-friendly and does not signal or pre-establish any valuation limit.