David Cummings on Startups

Why No Equity Component at the Atlanta Tech Village

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David Cummings

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Earlier today I was talking to a business executive about the Atlanta Tech Village. He was asking a number of questions and got to the most popular one: is there an equity component at the Village? My answer, of course, is that there isn’t an equity component. The response is always “why not — you should get a piece of the action.” At that point I nod and change the subject as it can be hard to explain.

There’s no equity component at the Village because we want to attract all types of entrepreneurs. Imagine a successful serial entrepreneur evaluating office space options for his or her next company. Since they have personal resources and a track record, there are a number of quality office buildings that would enjoy having them as tenants (assuming a personal guarantee on the lease). If there was an equity component, it would seriously increase the friction to attracting successful entrepreneurs. In turn, this would lessen the opportunities for successful entrepreneurs to help first-time entrepreneurs.

In a similar manner, imagine there’s an entrepreneur that has a successful early stage startup (e.g. $500,000 in recurring revenue and a handful of employees), we also want them at the Village (assuming a good culture fit). Once a business is working and product-market fit has been achieved, the equity is worth significantly more, and an entrepreneur is less likely to part with it for a tech entrepreneurship community.

At the Village, our goal is to bring together all types of entrepreneurs that want to increase their chances of success by helping each other. With a straightforward business model (see the pricing) and not having an equity component, we increase the odds of attracting the best entrepreneurs.

What else? What are some more thoughts on not having an equity component at the Atlanta Tech Village?

Comments

3 responses to “Why No Equity Component at the Atlanta Tech Village”

  1. Ron Hollis Avatar
    Ron Hollis

    David…the fact you don’t take an equity position is definitely one of your competitive advantages, as you clearly know. It is amazing how many incubators want to have an equity position while not really providing any real value to the relationship. It allows them to only attract those clients that have higher levels of risk of success and funding, so they can rationalize the equity, else that would just convert the equity to cash and buy the services they need.

    Personally, when I started Quickparts, I was heavily pursued by an incubator (one of the 1st since this was way back in 1999). They wanted 1% of my startup and would provide me discounted (presumably) office space and, of course, access to their many mentors (which is appealing when you don’t know much), however, I “knew” we would be successful and the value of that 1% was much greater than what the incubator was providing, in my opinion. So, I stressed over this decision for a bit and turned them down. We ended up leaving the city all together, which eliminated another success story that they (the city and incubator) missed out on all because of that 1%.

    Reply
  2. Stephen Reid (@smileysteve) Avatar
    Stephen Reid (@smileysteve)

    It’s worth noting your other considerations with equity; It’s generally illiquid, difficult to value (at early stages), and more often than not ends up worthless (from early stages).

    Fair compensation is much more transparent and “fair”.

    Reply
  3. Greg Benoit Avatar
    Greg Benoit

    No one should ever personally guarantee a lease no matter what size or stage the company is at.

    Reply

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