FAQ
FAQ Directory: Common Questions | Ideas | Applications | Program | Mentors | Equity Collective Agreement | Equity Collective | Investment
Common Questions about the Virtual Silicon Valley Program
How does the Founder Institute operate virtually?
Founders in these programs are joining interactive feedback sessions with mentors over Zoom, collaborating with their cohort via Slack, leveraging our newly released Virtual Office Hours Tools to speak privately with mentors, using our existing backend course tools to build their business, and getting access to new benefits like weekly "AMA" events with Silicon Valley leaders.
Is a virtual program as good as an in-person program?
We have already transitioned the program to virtual in 30+ cities around the globe, and the feedback has been very positive. The program quality is not changing.
In fact, Founders in programs that are going virtual will receive even more opportunities for collaboration, relationship building, and feedback when building their startup, such as;
- More Office Hours Opportunities with Local Leaders and Mentors, and early access to our newly released Office Hours scheduling tool.
- Weekly AMA ("Ask Me Anything") Conference Calls and Private Webinars with the Silicon Valley FI Headquarters Team (including Adeo Ressi, CEO of Founder Institute), so you can get even more answers to the biggest questions you have building your business across a variety of topics.
- Fast Track to our Post-Programs ("Founder Lab"), where you can work closely with our Silicon Valley HQ to reach advanced milestones like raising a seed round of funding for your business. Since our post-programs have always been virtual, we are going to be running them at a much higher frequency during the crisis.
- Free and unlimited global program access for life. As an FI Grad, you can attend any in-person program session in any city around the world at anytime (including any future in-person program in your city).
Aren't economic downturns a bad time to start a company?
No. In fact, they are great time to start a company, and this is not just conjecture: the Founder Institute was founded in April 2009, during the "Great Recession".
Obviously, recessions are extremely challenging times for established businesses, and as a result, their contractors, partners, and employees. The macroeconomic and personal devastation caused by downturns cannot be overstated. They literally change the world.
However, if you are going to try to find a positive in the all the pain recessions cause, it is the opportunity for idea-stage, pre-seed, and nimble CEOs to quickly adapt and build products that resonate in the changing market. During a recession, large companies will move slow, talent is readily available, and the normal costs of real estate/ goods/ services is significantly lower. Many of the world's largest tech companies used these benefits to their advantage to launch and get traction during an economic downturn, such as Apple, Microsoft, IBM, Udemy, etc.
Will I still be able to connect with mentors and other founders?
Yes. In addition to meeting your Mentors and fellow Founders on the weekly virtual sessions (which will take place on Zoom), you will get dedicated Slack channels and Zoom Rooms to effectively leverage working groups, sessions, and pitching opportunities.
General Questions
Does the Founder Institute only accept tech companies?
The Founder Institute focuses on technology and technology-enabled businesses. This can include hardware and traditional businesses such as food, ecommerce, and brick and mortar, so long as the business has the ability to scale through technology. We typically do not accept founders looking to build non-scalable service-based companies, such as consultancies and agencies. See more information at FI.co/admissions.
How is the Founder Institute different from Techstars and Y Combinator?
Seed-accelerators like Techstars and Y Combinator typically take a company with a team, live product, and some traction and provide them with operating capital and/or a small seed investment to help them prepare for an angel or VC round of funding. The Founder Institute works with entrepreneurs before this point in their process, and provides them with a structured process, expert mentorship, and a global network to get to traction and funding.
Is the Founder Institute a pre-accelerator?
Pre-Accelerators exist to help you get into a seed-accelerator. While many Founder Institute Alumni do go on to seed-accelerators like Techstars, Y Combinator, and 500 Startups, this is not the sole purpose of the FI program. In fact, many companies companies leave FI further along than a seed-accelerator, or may not need funding at all. Only approximately 15% of FI alumni go on to join seed-accelerator programs, and we have relationships in place to facilitate that process when it makes sense for the company.
What is the schedule for the Silicon Valley Virtual 2021 Founder Institute?
To see the full calendar, visit FI.co/program.
Where are the Silicon Valley Founder Institute Feedback Sessions located?
Virtual Update: To ensure everyone’s health and safety, this program will be held online. Learn more on our Virtual Program FAQ page.
When in-person sessions resume, the local session locations are sometimes held in the same venues as the public pre-program events listed on FI.co/program, though this is not always the case. These Sessions are not open to the public, so their locations are not listed on the public website.
How much time does the Founder Institute require?
The Founder Institute requires a minimum of 20 hours of work per week, on average. Participating founders are required to join each three and a half hour weekly session, plus additional networking hours. The sessions will have between ten and fifteen hours of sprint work that needs to be completed before the following session, in addition to team meetings. If a participating Founder is also working on a prototype or some other aspect of the business, then the time commitment can be much greater.
How do I complete the Founder Institute?
In order to complete the program, a Founder must join the Feedback Sessions, complete all of the Growth Sprints in a satisfactory manner, and receive satisfactory ratings from Mentors. The Founder Institute supports the efforts of every entrepreneur, but the program is very hard, because building a meaningful company is harder. On average, about 30% of founders are able to complete program.
Do I need to join every FI session?
Joining the sessions are mandatory, however, it is understood that founders may have emergencies, illness, or pre-planned travel that may prevent them from joining one or two sessions. The Founder Institute makes exceptions on a case by case basis, but founders are advised to communicate any conflicts in schedule as early as possible to their Local Leaders. In particular, the Orientation, Mentor Idea Review, and the Mentor Progress Review sessions should never be missed.
What does the Application Fee for the Silicon Valley Virtual 2021 program cover?
The application fee covers the cost of processing the Admissions Assessment, which is handled by a third party testing provider. The fee is non-refundable.
What does the course fee for the program cover?
The course fee (<$999 USD for the Silicon Valley Virtual 2021 program) covers the bare minimum cost of operating the sessions and administering the program. The course fee is fully refundable before the third session of the program, so that participants can see if the program is right for them.
Are payment plans available?
We offer a payment plan of three equal installments of the regular course fee, in addition to a 5% service fee, with payments due monthly. Installments are payable via Stripe or Credit Card. Please reply to any email you have received from us if you are interested in a payment plan.
Is the Founder Institute only for individuals? Can teams or multiple co-founders also enroll?
The Founder Institute encourages founding teams to apply to the program, and a typical cohort contains roughly 40% teams, and 60% solo-founders. When a team joins the Founder Institute, the 4% pledge to the Equity Collective remains the same (it is 4% per company, not Founder).
Founding teams can decide to send one co-founder, multiple co-founders, or all co-founders to participate in the program, but each co-founder must apply separately (noting the name of your company in your application, in the “Company Name” section). Since we are the ‘Founder’ Institute, each co-founder’s application will be evaluated independently by our admissions team (one co-founder gaining acceptance does not mean that their entire team is accepted). However, even if one co-founder is rejected, any accepted co-founders are still invited to participate.
Teams are also able to enroll in the program for a discounted course fee per-founder: Teams of 2-3 are invited to enroll for 1.5x the course fee, and Teams of 4-5 for 2x the course fee.
Each enrolled founder will be responsible for completing assignments and participating in working groups, and 1-2 team members will be responsible for pitching during program sessions. Non-participating co-founders are not permitted to join the FI program sessions, but are welcome to participate in program Office Hours and company-building assignments, as well as many perks post-program.
What is the course fee refund policy?
You can receive a full refund of your course fee in your first Founder Institute program if you drop out before the start-time of the third program session (currently, the "Customer Development" session). This gives you the opportunity to try out the program for two sessions, with no risk. You can see the program schedule at FI.co/program, and all refunds are processed within 30 days after the third program session.
Similarly, if all or part of a team decides to drop out before the Refund Deadline, then the course fees paid will be refunded in accordance with the team pricing. So for example, if all co-founders drop out, then all course fees paid will be refunded; if a 4-5 member team downgrades to a 2-3 person team, then the difference between 1.5x and 2x the course fee will be refunded; and if a 2-3 or 4-5 member team downgrades to a solo-founder, then the difference between 1x the course fee and 1.5x and 2x the course fee will be refunded, respectively.
What happens if I drop out after the third session?
After the Customer Development session, if you cannot finish the program for personal reasons or get dropped by the Founder Institute, you can use your already paid course fee towards a future program of the Founder Institute in the same city, so long as that program begins within one calendar year of the start date of the program you dropped out from. If the course fee for the new program is significantly higher than your original one, FI reserves the right to require you to pay the difference in order to enroll in the new program. However, we will not refund the difference if the course fee of the new program is lower.
If I am already accepted, what is the deadline for enrolling in the Founder Institute?
In order to guarantee a spot in the program, we encourage founders to complete their enrollment promptly. Typically we close enrollment approximately 7 days before the start date of the program, but if the class fills up before then you may not be guaranteed a spot.
How do we pay as a team?
To pay as a team, email our support at admissions@fi.co for a link to the co-founder price.
Can full teams be dropped from the program?
Evaluations throughout the program are by team. If a team is not able to meet course requirements they will be asked to leave and re-enroll in the next program. If a team member decides to stop participating, the rest of the team can continue with the program contingent on there being one Full-time team member enrolled.
How do I start a Founder Institute program in my city?
The Founder Institute is always interested in speaking to qualified startup experts and local ecosystem leaders to start a local chapter. For more information, visit FI.co/lead
Still have questions? Feel free to contact us or join an upcoming Q&A conference call with Founder Institute local leaders.
FAQ Directory: Common Questions | Ideas | Applications | Program | Mentors | Equity Collective Agreement | Equity Collective | Investment
Ideas
Can I submit more than one idea?
This is up to you. FI is more interested in the person, and less interested in the business idea. Founders must select one idea to turn into a company prior to the Mentor Idea Review, roughly 30 days into the program.
How does the program’s ideation phase work?
For early-stage founders, founders are broken into smaller working groups by related ideas. These groups are then given specific assignments for refining, researching, and validating ideas.
Could other participants have similar ideas to mine?
Possibly. Some applicants supply multiple ideas that they intend to pursue, some of which may be similar to yours. That being said, founders in similar spaces have often ended up collaborating in the past, and your intellectual property will be protected by the founder NDA.
How is our intellectual property protected during the Program? Will somebody steal my idea?
All founders, mentors, and local leaders joining sessions of the Founder Institute have to sign NDAs before participating in the program. Your IP is protected under the NDA.
Still have questions? Feel free to contact us, or join an upcoming Q&A conference call with Founder Institute local leaders.
FAQ Directory: Common Questions | Ideas | Applications | Program | Mentors | Equity Collective Agreement | Equity Collective | Investment
Applications
How does the application process work?
First, navigate to the join page: https://FI.co/join. After selecting your city, filling out information about your idea or company, and paying the $10 USD application fee, you will be provided with a link (both by email and on the site) to fill out the admissions assessment. Learn more about our admissions process at FI.co/admissions.
What is the Founder Institute's Admissions Assessment?
We focus on founders, not ideas. As a result, all applicants are required to take a proprietary psychometric/ aptitude test developed by the Founder Institute and leading social scientists. Learn more about the assessment at FI.co/DNA, and our full admissions process at FI.co/admissions.
How do co-founders or teams apply to the Founder Institute?
The Founder Institute encourages founding teams to apply to the program, and a typical cohort contains roughly 40% teams, and 60% solo-founders. When a team joins the Founder Institute, the 4% pledge to the Equity Collective remains the same (it is 4% per company, not Founder).
Founding teams can decide to send one co-founder, multiple co-founders, or all co-founders to participate in the program, but each co-founder must apply separately (noting the name of your company in your application, in the “Company Name” section).
Teams are also able to enroll in the program for a discounted course fee per-founder: Teams of 2-3 are invited to enroll for 1.5x the course fee, and teams of 4-5 for 2x the course fee.
What are the application deadlines for the program?
The Early Application Deadline is Nov 22, 2020, and the Final Application Deadline is Feb 7, 2021. To apply, visit FI.co/join.
What is the benefit of enrolling before the Early Application Deadline?
If you enroll by the Early Admissions Deadline (Nov 22, 2020) in Silicon Valley), you will be invited to take the Admissions Assessment for free, and you will be eligible for a reduced course fee.
I applied for a Fellowship. How do I know if I have received one?
Fellowships are normally awarded within 5 days after the Early Admissions Deadline (Nov 22, 2020) in Silicon Valley). All Fellowship recipients are notified by email no later than 7 days after the Early Admissions Deadline, and unfortunately due to the large number of applications, we cannot always notify all applicants that they have not been chosen for a Fellowship.
After being accepted can I reapply to another program, or do I have to apply all over again?
You can apply to any other Founder Institute program without redoing your application or retaking the Admissions Assessment.
If you want to defer your acceptance from this program to the next program, just let us know via email. We will then mark you as Declined, and you will be notified via email when the next program opens applications. Typically, this will take place in the next 6-12 months. While most people who defer their acceptance are admitted to the future program, we cannot guarantee this because you will be judged against a new cohort of applicants.
If you want to change your city, just log into the Founder Institute website and go to the application page (FI.co/join), where you can see the chapters currently enrolling and pick a new one.
Will information from the application process be shared or made public?
The Founder Institute will not reveal any application information to the public. Once enrolled, founders are given the option to make parts of their profiles public.
Can I apply if I have an established startup?
Yes. The Founder Institute is appropriate for both aspiring founders, and founders that are running a business that is less than two years old and with less than half a million in annual revenues. Founders that are more advanced in the program are put on the "Growth Track", which focuses more on generating traction and preparing for funding.
What is the difference between the "Launch Track" and "Growth Track" ?
Because founders and teams come into the program at different stages of the pre-seed stage, the Founder Institute program bifurcates between a "Launch Track" for earlier-stage founders, and a "Growth Track" for later stage founders and teams. The "Launch Track" is designed to help individuals and teams at the idea-stage validate their business, grow their team, and launch their startup. The "Growth Track" is designed to help teams that are post-launch generate traction and prepare for funding.
Can I join the program if my company is already incorporated?
If the company is incorporated with an acceptable legal structure, then the company only needs to issue the warrant or option with the help of a law firm, or professional firm. Otherwise, the legal partner needs to work with the company to transition an incorrect structure to the proper structure as part of the engagement.
The Founder Institute does not accept partnership and LLC formats because these companies are not optimal for issuing shares and raising capital.
How many founders will be in the program?
Between 20 and 50 founders typically enroll in a given cohort. A number of factors encourage limiting the group size, such as the capacity of reserved meeting facilities, the ability to deliver a meaningful mentorship experience, and the quality of the shared upside among participants.
I applied, but did not receive an email response. Did you get my application?
Yes. After you successfully apply, you will be logged into the Founder Institute site. On the right hand side, it should say: Semester: Silicon Valley Virtual 2021, Role: Founder, Status: Applied. This indicates that your application has gone through. As the Founder Institute processes applications, your status will change to "Reviewing," "Accepted," "Finalist" or "Rejected." Within 48 hours, the admissions team will begin reviewing your application and you will receive an email notification. FI will also email you when your application status changes.
Still have questions? Feel free to contact us, or join an upcoming Q&A conference call with Founder Institute local leaders.
FAQ Directory: Common Questions | Ideas | Applications | Program | Mentors | Equity Collective Agreement | Warrant/ Equity Collective | Investment
Program
What is a typical Feedback Session like?
Do founders need to quit their day job?
No. The Founder Institute has a mix of full-time and part-time founders in the program. Many businesses get started with part-time founders until the company gains traction. Once a company gets off the ground and properly capitalized through revenues or investment, FI expects that the founders will start working full-time.
Can I find a co-founder in the program?
Yes. Since participants have shared areas of interest and hail from a variety of backgrounds, it is common for founding teams to be established with different program participants. In one case a Mentor even joined one of the Founder Institute companies as a Co-Founder.
What is the Founder Institute’s graduation rate?
Graduating from the Founder Institute is challenging. First, only roughly 30% of applicants are admitted to the program. Then, less than 30% of accepted founders generally make it through the program. In order to graduate, a Founder needs to develop an engaging idea for a technology company that is validated by the program mentors, plan out the business, work on an offering, incorporate their company, and complete all of the required assignments - all within a four month timeframe. Reasons for not graduating differ, but each Founder who leaves is invited to join a future program, when they are ready to launch a business.
If I drop out of the program or get dropped after the refund deadline, can I return to the next program for free? Can I join a different location?
If a solo-founder drops out after the Refund Deadline (the third session of the program), they are able to apply any course fees paid towards the next Founder Institute program in their city. Approximately 30-40% of founders that drop out of the program return to the next program.
If you want to enroll in the next program, you will need to pay a small re-enrollment fee ($50), plus any difference in course fee. We will not refund any fees if the course fee for a future program is lower.
Still have questions? Feel free to contact us, or join an upcoming Q&A conference call with Founder Institute local leaders.
FAQ Directory: Common Questions | Ideas | Applications | Program | Mentors | Equity Collective Agreement | Equity Collective | Investment
Mentors
How does the Founder Institute select Mentors?
The Founder Institute selects Mentors with a broad range of industry experiences, including hardware, software, manufacturing, biotech, entertainment, digital media, investment, services, and B2B/B2C. Most Mentors have started multiple companies and are currently running a well-known startup. In addition, all Mentors are anonymously rated by program participants for the sake of quality control.
How do founders get paired with mentors?
The pairing process is informal. Founders have the opportunity to ask questions of mentors before, during, and after each session. While some mentors are extremely busy, it is expected that the majority of mentors will help founders where they have common interests. The mentors are compensated through the Equity Collective, and mentor compensation increases with positive ratings from participating founders. This gives mentors the extra incentive to help the founders, provide introductions, etc. In addition, a final review is done after the program is completed, creating an incentive for longer term mentor involvement.
Still have questions? Feel free to contact us, or join an upcoming Q&A conference call with Founder Institute local leaders.
FAQ Directory: Common Questions | Ideas | Applications | Program | Mentors | Equity Collective Agreement | Equity Collective | Investment
Equity Collective Agreement
Where can I find the Equity Collective Agreement?
To see the Local Equity Collective Agreement, select the city of your choosing from the drop down on the top right corner of the site, and then go to FI.co/agreements.
Will the Founder Institute help me incorporate?
The Program will include a session about legal topics during the Startup Legal and IP session. If you need help with getting incorporated, you can always ask for help during the program's office hours, or speak with our local legal partner, leaders, or mentors.
Do I need to be working with a law firm now?
You should engage a law firm for incorporating your company during the Program, and we will provide you with the guidance and tools to do so. In some countries, professionals, such as corporate secretaries or accounting firms, are customarily hired to incorporate a company. It is important that you hire a professional to create the corporation to ensure that it is done properly and investors can fund your company.
Do I need to use the Founder Institute’s legal partner?
The Founder Institute strongly recommends that Founders go with our legal partner, but we do not mandate it. Our legal partners deeply understand the Founder Institute process and know how to help early stage Founders. Most legal partners also provide discounted and/or deferred pricing.
Cheap legal alternatives will not be able to help you when very technical problems happen. In the long run, it can cost hundreds of thousands of dollars. We suggest that you check with your lawyer and research on local prices and policies.
Am I required to incorporate in my home country?
You are allowed to incorporate in whatever country you see fit, as we have localized agreements in many jurisdictions. During our Startup Legal & IP session, we will give you advice on how/where to incorporate as well. For those incorporating in the United States, we recommend Delaware C-Corps as they are the most conducive to raising venture capital. There are similar safe-havens for corporations all across the globe.
What if I can’t incorporate due to work, unemployment, or visa conflicts?
This question should be asked to your law firm as each country has different laws and policies. The legal partner should review existing employment contracts and basic visa situations to determine if a Founder is able to incorporate a business without significant ethical breaches. The Founder Institute does not sponsor nor facilitate any processes with regards to Visas. If you cannot incorporate a company, you cannot graduate from the program.
What if my company is already incorporated? Can I or should I still enroll into the program?
We have had many successful cases of Founders that go through the program to receive valuable feedback from mentors even while they have already had an incorporated company. If the company is incorporated with an acceptable legal structure, then the company only needs to issue the warrant or option with the help of a professional law firm. Otherwise, the legal partner needs to work with the company to transition an incorrect structure to the proper structure as part of the engagement.
The Founder Institute does not accept partnership and LLC formats because these companies are not optimal for issuing shares and raising capital.
I already own a company, but I want to work on a new company in the Program. Will FI own part of my old company?
No. At approximately 1/2 way through the Founder Institute program (around the Startup Legal & IP session), you will sign the warrant or option agreement for the company you are building in the program.
How is our intellectual property protected during the program? Will somebody steal my idea? How do I know nobody will steal my idea in the program?
All founders, mentors, and local leaders joining sessions of the Founder Institute have to sign NDAs before participating in the program. Your IP is safe. We also tell all of our Founders that in many cases, Founders change their ideas in the program and realize that for example there is no market for the idea to scale or that there are holes in the idea that cannot be filled and therefore should be dropped.
Additionally, your idea will never be able to be replicated the same exact way that you visualize it. Ideas are worthless, execution is everything. If you actually have a good idea, then there is a big chance that someone else out there is already working on it.
By restricting yourself to talk openly about your ideas, you forgo valuable opportunities to get feedback on your startup.
Does the Founder Institute have voting power in my company after I graduate?
The Founder Institute does not have any voting rights in our alumni companies, and we do not hold any board seats either.
If I drop out, do I still owe 4% equity to the Founder Institute?
When is 4% of my company granted?
During the course of the program, each Founder will be asked to incorporate their company as a mandatory part of the program. The 4% warrant will be issued from the company that is created during the FI program at this time. The necessary documents to actually issue the 4% warrant (warrant, board resolution, etc.) will all be handled after incorporation is complete.
If you drop out with more than 45 days left before Graduation ( May 26, 2021 ), then you are not obligated to issue the warrant. However, if you drop out with less than 45 days left in the program, then you are contractually bound to issue the Founder Institute warrants in accordance with the Equity Collective Agreement. This prevents people from cheating the system and leaving the program at the very end, thereby purposefully avoiding contribution into the Equity Collective and cheating their peers, mentors, and the Founder Institute.
Why is any company that I create during the program, and within 6 months after Graduation of the program, obligated to join the Equity Collective?
Similar to the 45 day stipulation above, this clause is meant to prevent founders from immediately starting a new (identical) company after Graduation that is not part of the Equity Collective, thereby cheating their peers and the Founder Institute. We would only use this clause if the new company formed within 6 months was identical or very similar in nature to the company you formed in the program.
Why are founders required to start a commercially viable product within 24 months after the program?
This clause was added to the Equity Collective Agreement after receiving feedback from alumni, and it prevents alumni that do not try to build a company within 2 years after the program from participating in the Equity Collective.
Where is the Equity Collective Agreement to sign and upload?
Be sure to select your city in the top right drop down menu, and visit the Agreements page.
How do I upload the Equity Collective Agreement to the Founder Institute web site?
First, try following the instructions below:
- Log in to Fi.co
- Click eSign Equity Collective Agreement
- Scroll to the bottom of the page and click the 'Click Here to Sign' button
- Digitally sign your name
- Click 'Save' then click 'Submit'
If this process doesn’t work, please download the agreement from fi.co/agreements and send the signed PDF to Mailing@fi.co with your information, including full name and location of the program where you intend to enroll. Alternatively, you can reply to any emails you have received from us.
I have legal questions about the FAST agreement.
The FAST agreement (https://fi.co/FAST) gives you the legal framework to engage with mentors and advisors. It was developed by our CEO, Adeo Ressi with our partner law firm, Wilson Sonsini Goodrich & Rosati, LLP (WSGR). It is a public document for anyone to use and edit. For any questions regarding the document, please consult a legal counsel.
How do I get answers to questions about the Equity Collective Agreement?
You can reply to any email you have received from us, and we will try to respond ASAP. In addition, we host two Conference Calls per week with FI Local Leaders to answer questions for applicants. To see the upcoming calls, visit http://fi.co/calls.
Still have questions? Feel free to contact us, or join an upcoming Q&A conference call with Founder Institute local leaders.
FAQ Directory: Common Questions | Ideas | Applications | Program | Mentors | Equity Collective Agreement | Equity Collective | Investment
Warrant & Equity Collective
What is the Equity Collective?
Each alumni company contributes 4% of their equity into a collective, which is shared between each cohort's alumni, mentors, local leaders, and the Founder Institute. This encourages teamwork in the local cohort, and provides returns to everyone involved in each program (including alumni). For more information, visit https://fi.co/liquidity.
How does FI’s equity allocation work?
Graduating founders allocate 4% of your company to the Founder Institute through the form of a Warrant or Option, and the Founder Institute then contractually allocates any money that is generated from the Warrants or Options to various stakeholders. Upon exercising the warrant, The Founder Institute would become on official common shareholder for easy corporate housekeeping, but the contractual allocation spreads returns from the Warrants or Options with others, allowing you to have the benefit of multiple shareholders without the complexity. Teams that join the Founder Institute pledge 4% total to the collective (it is 4% per company, not founder).
How does the Equity Collective allocation work for co-founders or Teams?
Each Founder that contributes a company to the Equity Collective receives an equal share of the 25% allocated to founders. If there are 10 founders in the collective, then each Founder gets 1/10 of the collective, or 2.5%. Co-founders split their allocation. So, If there were 12 founders contributing 10 companies, and two of the 10 companies each had two co-founders, then each co-founder would get 1.25%, while all other single founders would get 2.5%. Since value in the collective is derived from companies, shares in the collective are allocated for each company contributed.
What are the potential returns?
Even in small acquisitions of $5 MM or less, the financial return from the Equity Collective far exceeds the average course fee by multiple times. Below are four hypothetical situations where a Founder in the Equity Collective sells their company for anywhere between $5 MM and $250 MM. The model assumes that the collective will be diluted over time as the company gets larger and brings on investors, senior employees and partners. The model also assumes that there are 10 graduating founders, each getting 1/10 of the collective 25% allocation to founders, or 2.5% each. Please note that collective returns are paid out to individual founders, not to their companies, so returns can be used for anything that you want, from paying rent to investing in your startup.
| Exit Valuation | $5,000,000 | $10,000,000 | $50,000,000 | $250,000,000 | Notes |
| Warrant or Option Strike Price | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | *Conservative of $1M to exercise a warrant |
| Initial Equity Collective % | 4.00% | 4.00% | 4.00% | 4.00% | |
| Dilution of Equity Collective % | 10% | 30% | 40% | 50% | *Estimate based on typical dilution |
| Final Equity Collective % | 3.60% | 2.80% | 2.40% | 2.00% | *Warrant % after estimated dilution |
| Total Equity Collective Return | $144,000 | $252,000 | $1,176,500 | $4,980,000 | *Final Warrant % * (exit valuation - strike price) |
| All founders Equity Collective Return | $36,000 | $63,000 | $294,000 | $1,245,000 | *25% of liquidity goes to the cohort's alumni |
| Personal Equity Collective Return | $3,600 | $6,300 | $29,400 | $124,500 | *Based on avg FI graduating class size of 10 |
How do I join the Equity Collective?
At approximately 1/2 way through the Founder Institute program (around the "Startup Legal & IP" session), you will be required to incorporate your company and sign the warrant or option agreement. At this point you will be added to the Equity Collective. Founders that do not wish to join the Equity Collective need to withdraw from the program before the last 45 days of the program (the Silicon Valley Virtual 2021 program ends on May 26, 2021).
How does the Equity Collective generate returns?
When a founder in the Equity Collective achieves a liquidity event by selling their business or by going public, the Founder Institute distribute the proceeds to the stakeholders through the following process. The founder notifies the Founder Institute that there is an impending liquidity event, and FI will provide some strategic advice on closing the deal for the best terms. FI will also work quickly to provide any necessary signatures and approvals. When the transaction is completed and a payment is sent to FI, FI then takes the total return and divides it up by the contractual allocation, which is stored in our systems and checked by our accountants. Individual distribution checks are then cut for all of the stakeholders and mailed along with a nice letter. In the future, FI may switch to PayPal for convenience.
Do I have to join the Equity Collective to graduate?
Yes, it is a requirement for graduation.
How long does the Equity Collective last? Does the warrant expire?
The warrants and the collective expire after 15 years from the issue date. The Founder Institute set a realistic timeframe for companies in the collective to achieve some type of liquidity event, such as a merger, a sale or a public offering. The vast majority of businesses will either fail or succeed within 15 years.
Does the Founder Institute have voting power in my company as a result of joining the Equity Collective?
The Founder Institute does not have any voting rights in our alumni companies, and we do not hold any board seats either.
Why is the Equity Collective 4%?
The Founder Institute analyzed multiple equity programs, and choose 4% as the smallest amount of equity to contribute that can still return reasonable value to the collective. As one example, setting up an advisory board normally requires 5% of a company to attract 5 or 6 advisors, and the Founder Institute wanted to be less than 5% to attract over two dozen Mentors during the program. As another example, most funding incubators purchase approximately 7-10% of a company for approximately $20,000, and FI wanted to be less than these type of programs. At 4%, founders in the collective can get $100,000 in cash returns from low a nine figure exit.
Why does the Founder Institute use warrants versus equity?
Warrants have a number of advantages over equity.
(1) Successful founders from incubators often feel that they receive bad investment terms from the incubator. Warrants ensure that any equity placed in the collective for the Founder Institute and other stakeholders is priced by the market, creating a win-win scenario.
(2) Warrants do not give the Founder Institute any control or voting rights in the company
(1) Successful founders from incubators often feel that they receive bad investment terms from the incubator. Warrants ensure that any equity placed in the collective for the Founder Institute and other stakeholders is priced by the market, creating a win-win scenario.
(2) Warrants do not give the Founder Institute any control or voting rights in the company
How does investment work with the Warrant or Option?
There are two types of investments done by founders, either a convertible investment or an equity investment. The Warrant or Option only matters with respect to a Qualified Equity Financing, which is defined as any equity investment for $100,000 USD or more completed by external investors, people other than the founder or founders themselves. If you join a qualifying startup program, such as YCombinator, after graduation from the Founder Institute program, a Qualified Equity Financing is defined as any equity investment for $25,000 USD or more. The Founder Institute maintains a list of qualifying startup programs that may be updated from time to time.
When a Founder in the Equity Collective completes a qualified equity investment, the shares in the company are given a value by the outside investors. At this point, the strike price of the warrant is set. The number of shares of the warrant is also set at 4% of the company after the investment is complete. Hundreds of founders have raised capital with the Founder Institute warrant in place. Most investors are used to investing in companies with Warrants or Options present.
Will the Founder Institute buy the warrant or option?
The Founder Institute does not intend to purchase the warrant or option until a liquidity event occurs with a greater value than the strike price, at which point FI will purchase the warrant or option to return value to the Equity Collective.
What is the exercise share price of the warrant/ option? How many shares are included?
The exercise price is the price-per-share granted via the Warrant. The share price is set by your investors during the first Qualified Equity Financing. As a basic overview, the warrant is an agreement that allows us to buy stock from you in the future. The price and the exact amount of shares (4%) we can purchase gets determined at your first "qualified financing" or "priced round" of the Company. The qualified financing sets the valuation of your company and the "price per share" based upon whatever terms you negotiate with the investors. Our 4% is based upon of the total outstanding shares at the qualified financing round, but this amount gets diluted over time if you raise future equity financing rounds. In practice, FI waits to actually execute the warrant (buy the shares from you) until there is a liquidity event (M&A, IPO, etc.), which could be 10 years from now. We do not actually own the shares until we execute the warrant and we have no voting rights in the company.
How is the 4% equity of the company determined? Is it a flat 4% or dilutable?
The warrant grants the Founder Institute 4% at the time of the first Qualified Equity Financing This 4% is fully dilutable over future rounds of investment.
How does the net exercise clause in the warrant work?
This clause allows the Founder Institute to exercise the warrant and obtain shares without having to pay with cash. Please consult your lawyer if you have specific questions about this clause.
If the Founder Institute sells the equity in a Founder's company, does that Founder continue to participate in the Equity Collective?
FI reserves the right to sell the equity granted via the Warrant at a time of its choosing. Alumni companies continue to participate in the collective until its termination (15 years) even if their equity has been sold.
Why is there a termination clause that requires a company to pay $100,000 if the Founder resigns as the CEO of my company?
This provision is there to protect a Founder from involuntary termination. This clause is there to help the Founder in the case that the Board wants to remove the Founder as the CEO. If you leave the company as the CEO voluntarily and would like to appoint a new CEO, the company is not required to pay the penalty.
**The information you obtain on this website is not, nor is it intended to be, legal advice. You should consult with an attorney for individual advice regarding your own situation.
Still have questions? Feel free to contact us, or join an upcoming Q&A conference call with Founder Institute local leaders.
FAQ Directory: Common Questions | Ideas | Applications | Program | Mentors | Equity Collective Agreement | Equity Collective | Investment
Investment
Can I apply if I am not planning to raise money?
Yes. FI encourages founders with standalone business ideas that are capital efficient to apply. The majority of topics covered in the program are relevant to any business, such as team building, vendors, and revenue. The Founder Institute is working with two dozen partners on discounted or free offerings to dramatically reduce the cost of launching a new company, making enrollment worthwhile.
Can I apply if I am already fundraising?
Yes. The Founder Institute encourages active fundraising throughout the program for founders that are prepared and require outside capital. The goal is to get founders in front of investors multiple times before the program ends.
How will founders interact with investors?
At graduation, top rated angel investors and venture capitalists will be invited to join and contribute. At this investor session, you will be experienced and very well prepared to pitch. In past investor sessions, over a dozen venture capital companies have been represented, with additional angel investors. FI also facilitates investor meetings outside of the program.
Are investors turned off by the Class F stock and Equity Collective?
Some are, yes, and others are not. Only the best teams and the best companies will receive financing in the current economic climate, and these strong opportunities will be able to push for better terms. The Founder Institute aims to foster the best, and that is reflected in the terms. FI does not mandate that companies use the documents nor that the founders participate in the collective.
How much money should participating founders plan on raising?
The Founder Institute invites a wide range of founders from different sectors to apply. Some companies need more capital and will raise more capital during the program. The amount of money that a participating Founder can expect to raise is ultimately based on the business, its specific needs, and the execution.
Does the Founder Institute make investments?
The Founder Institute does not invest directly in alumni companies. However, we do facilitate investment through introductions, local/ regional/ global events, and more.
Does the entrepreneur have input into and veto power over the valuation?
The founders choose the investors, negotiate the terms, and sign the deal with assistance of - but no control from - the Founder Institute. Everything is up to the founder and the shareholders. Keep in mind that the Founder Institute will not be a shareholder of any kind pre-funding.
Still have questions? Feel free to contact us, or join an upcoming Q&A conference call with Founder Institute local leaders.
FAQ Directory: Common Questions | Ideas | Applications | Program | Mentors | Equity Collective Agreement | Equity Collective | Investment