+ What are TinySeed’s investments terms?
TinySeed is a 1-year, remote accelerator that funds 10-15 companies at once. Those companies go through our accelerator program as a batch.
Our terms are based on those Rand Fishkin used to raise funding for his company SparkToro:
- TinySeed invests $120k for the first founder + $20k per additional founder, in exchange for 8-15% equity.
- We invest a portion up front to help with startup costs, then essentially distribute a monthly "salary" for the remainder of the program. If you don't need this money for living expenses, it can be invested into marketing, design, contractors, etc. to help grow the business.
- We determine a salary cap with the founder based on a software engineer in the closest major city.
- As the business generates profit, the founder can choose to increase his/her salary up to the cap. Any additional funds they take out of the business are dividends.
- This allows the founder to reinvest profit in the company as long as they like. In this scenario, TinySeed does not take revenue or profit from your company, only dividends that you decide to pull out at timing that works for the business.
- Dividends are split pro-rata based on percentage ownership.
- If the company sells, investors receive the greater of their initial investment back (minus any dividends paid to date), or their pro-rata share of the proceeds based on ownership.
- If you decide to raise additional venture capital, our equity converts to the same class of stock as your new investors, and we retain a right to participate in your future financing round at whatever valuation that happens at.
In addition, we provide extensive mentorship and guidance through weekly mastermind calls with other startups in your cohort, and office hour calls with mentors.
Our roster of mentors is diverse and second-to-none - look here for a full list.
+ Why did you choose these terms?
Our terms are modeled after the terms Rand Fishkin (founder of Moz) used to raise funding for his most recent startup, SparkToro.
TinySeed co-founder Rob Walling is an angel investor in SparkToro, so had first-hand access to the terms, but Rand also published them online.
If a founder of Rand’s caliber (who was disgruntled with venture capital) came up with these terms for his own startup, they should, by definition, be founder-friendly.
- Our structure enables founders and investors to share in the winnings of a profitable business, increasing the odds of survival, and removing much of the risks of VC's "homerun or nothing" mentality.
- Maintaining flexibility on when you re-invest in your business vs. pay out dividends keeps control of the business in the hands of founders, where we believe it belongs.
- TinySeed's terms mean you won't face the same pressures to sell your business if growth slows -- it is always up to you when and whether to pursue higher growth vs. stronger profits.
- This model, unlike most venture-focused accelerators, allows companies to deliver investment returns even if they stay relatively small by venture capital standards.
+ Why do you take equity and not revenue or profit sharing?
The trickiest part of starting TinySeed was finding the appropriate balance between founder-friendly and investor-friendly terms. It's easy to come up with terms that favor either founders or investors too heavily
Our goal was to find a model that provides capital to founders that VCs won’t typically back, but do it in a way that gives those founders maximum optionality to raise future rounds if they decide to, and doesn’t draw money out of their company at the wrong time.
After investing an enormous amount of time working through options, we decided that TinySeed will take an equity stake in the businesses we back, and we will not ask for a fixed profit or revenue share that begins at a specific time.
This is risky for us, but one reason we believe it’s the right decision for founders is that it allows them to take money out of their company (as dividends), only when they decide to do so. Profit sharing models force you to take money out of your company on a fixed schedule (example: 2 years after receiving the funding). Starting on a pre-specified date you are required to begin paying x% of your monthly revenue or y% of your profit to the investor.
If these payouts start at a bad time for the company (example: when the company is still growing quickly and needs the cash) they have real potential to dampen growth or put the company's well-being in danger. This is the main reason we’ve decided to leave the timing up to the founder.
- We only want to get paid when the founder is also getting paid (hopefully handsomely).
- We want to be in the founder's corner for the long-term, rather than making an investment that can wind up feeling like a loan.
We think our approach aligns investors and founders, is clear and straightforward, and allows us to be in your corner for the long term.
+ What kinds of companies do you invest in?
We focus on subscription software companies that have the potential to grow into 7- or 8-figure businesses.
SaaS falls into this bucket, as do subscription marketplaces and subscription media sites.
We will accept applications from almost any stage - from idea to launched to scaling. We have no revenue minimum or maximum, though traction is one of many factors we use when evaluating startups.
+ Do you fund non-U.S. companies/founders?
Founders can live anywhere, but for now your corporate entity must be formed or converted into a U.S. entity.
We hope to change this in the future, but at this point it's due to the challenge/cost of navigating laws in any of the 200+ countries in the world.
One thing to consider if you’re planning to live outside the U.S. is that we will hold regular mentorship and mastermind calls during U.S. working hours, so your time zone should make that feasible.
+ How is TinySeed different from other accelerator programs?
TinySeed is a remote accelerator, and companies will be mentored for a full year. Most other programs – think YC, TechStars – run for three months and founders have to relocate to a specific location. But there are thousands (if not tens of thousands) of bootstrappers who aren’t able to relocate due to family or other personal obligations.
In addition, accelerators focus on demo day – the day at the end of the program where the companies pitch their progress in an attempt to raise a seed or Series A. Since bootstrappers tend to be capital efficient, a founding team can live off that same low six-figure investment ($120k-$150k) for an entire year if they can participate remotely, without the necessity (but the option) of raising more capital at the end of the 12 months.
Another difference is that companies don’t need to exit for TinySeed to work. We’ve designed the model to work with dividend payouts so founders can retain ownership of their company for the long-term.
This also means they can grow at a healthier pace and don’t need to force growth to raise their next funding round. We like to think of this as building a sane startup. That is, a startup that values people over results, has reasonable working hours, provides ample days away from the office, and generally doesn’t burn out the people involved.
Finally, we don't have a bias against single founders like most accelerators. The majority of successful $1m-$30m SaaS companies we know were started by founders working alone. This is another segment of this ecosystem that we’ll be focusing on.
+ I don’t need the money, is TinySeed worth it just for the mentorship?
When growing a startup you don’t need mentorship every day, but when you need it, it’s game changing to have access to successful founders who have been down the road you’re traveling.
There are no silver bullets in startupland, but sometimes a word of advice can keep you from making a bad hire, wasting time on a marketing approach, or save weeks of time exploring a dead end pricing change.
That’s why we’ve gathered some of the foremost founders and subject-matter experts who will provide guidance on topics ranging from copywriting to SEO, top of funnel marketing to CRO…and pretty much everything else you’ll face on the journey.
To date we have 27 successful mentors on board, including: Hiten Shah, Joanna Wiebe, Jason Fried, DHH, Laura Roeder, Steli Efti, Chris Savage, and Rob Walling.
There’s another aspect to becoming a TinySeed company. The halo effect of the curiosity generated by the thousands of founders following the TinySeed story, having your company discussed or interviewed on podcasts, talked about from conference stages, and other serendipity that happens when you’re plucked from several hundred applicants.
There’s a certain stamp of approval that comes with becoming a TinySeed company.
+ Why do you invest in batches?
From the beginning, we knew we wanted to fund in “batches.” That is, groups of 10-20 companies going through the program together.
Einar went through YC in 2009 and witnessed the benefits first-hand.
Rob has been a vocal proponent of mastermind groups for close to a decade, where you share your journey with other founders who are also slogging it out in the trenches.
Add to that the friendly competition it can spark, the lifelong relationships, and we believe it’s a superior approach to funding companies asynchronously. The founders we’ve spoken with agree, and are excited about the possibility of being part of a group of 10 or so companies all working towards similar goals.
+ How can TinySeed’s model work without unicorns?
Traditionally, venture capital has consisted of unicorn-hunting. VCs are looking to fund the next Facebook or Oculus Rift. If a traditional VC funds your business and it gets to $50m in revenue, generating $20m in profit year over year, it’s considered a miss.
On the surface that might seem ludicrous, but VCs are generally smart people and just like you, they have customers (their investors, also known as “LPs,” which are typically institutions like pension funds and university endowments).
Their customers demand a certain kind of return – one that can only be achieved by looking for businesses that have the potential to provide a 100x or 1000x return on their investment. On average, a unicorn is found less than 3% of the time.
You might think of TinySeed as the accelerator for the long tail of startups. These are startups (perhaps like yours) that will never become the next Facebook. And because of that, the traditional VC model will not work.
So we sought a structure that allows our investors to get a fair return without the potential of finding a unicorn in the portfolio (otherwise investors will simply stop backing companies like yours).
To do this, we’ve arrived at a way for investors to share in the success of a company. If you decided to sell your business for a big payday - great, we’ll participate in your exit. If you decided to turn your business into a cash machine for the long term - also great, we’ll participate in your success via dividend sharing.
Crucially, this structure allows us to provide sufficient return for our investors without sacrificing a company’s growth or its potential to raise future funding (should you decide to do that).
Essentially, we’ve found an approach that allows us to succeed when you do. And this approach enables us to provide a fair return without the need for unicorns.