Prologue, an organization backed by a few of Silicon Valley’s largest enterprise capital corporations, desires to construct a giant enterprise out of small stakes in dozens of start-ups. First, it must navigate a tech crash.
Andreessen Horowitz and Sequoia Capital have invested $23mn in Prologue, making it certainly one of most well-funded new challengers to famed start-up accelerator Y Combinator. Prologue’s funding arm, Hyper, lately started soliciting candidates for its third “season”, a four-week coaching programme that comes with $300,000 in funding.
But the highway forward abruptly appears to be like treacherous. A pointy sell-off within the shares of fast-growing, cash-burning, public tech firms has prompted enterprise capital corporations to warn firms of an impending slowdown. Another start-up accelerator, On Deck, laid off 1 / 4 of its workers this month. Y Combinator despatched a word to firm founders final week warning that the “safe move” now could be to “plan for the worst” by slicing prices and elevating extra funding.
Hyper’s staff holed up for a retreat in New York final week, their first because the staff expanded to 9 folks. They emerged optimistic.
“Founders are now valuing the mentorship that comes from an accelerator and the doors that it opens,” mentioned Shahed Khan, chief govt of Hyper. The new atmosphere could be a “net positive” for comparable programmes, he added.
While many others have tried to compete with YC, Silicon Valley’s oldest and largest accelerator, Prologue represents one of the vital auspicious makes an attempt to dislodge its fame because the Harvard of start-up formation.
Prologue additionally owns the favored web site Product Hunt and plans to funnel income from Hyper into the media enterprise, which it hopes will assist start-ups within the programme discover new clients. Executives wish to buy and create different companies underneath the identical umbrella.
Eventually, Prologue might record its shares on public exchanges — a step no main enterprise capital agency has taken.
“Our goal is to really build effectively an index fund of the best performing early stage start-ups,” mentioned Khan. Prologue might grow to be a “lifestyle brand” just like the $280bn French luxurious conglomerate LVMH, he mentioned.
Prologue’s ambitions level to the battles being fought between enterprise capital corporations and different rich backers to seek out and spend money on start-ups on the earliest phases, when vital stakes could be bought for pennies per share.
Hyper’s first $60mn fund acquired backing from companions at each Andreessen and Sequoia. The corporations additionally get to take a look at the highest 1 per cent of firms Hyper rejects every quarter.
Both Andreessen and Sequoia individually began making investments of as much as $1mn this yr in firms reviewed by way of open software techniques.
Their entry into the market contributed to a choice by On Deck earlier this month to put off greater than 70 staff, or one-quarter of the corporate’s workers, in line with an individual accustomed to the corporate’s considering. Executives blamed the cuts on a shift in market situations because the firm opened its accelerator in October final yr.
On Deck plans to mix its accelerator with a separate programme that gives mentorship to folks fascinated about beginning their very own firm, the individual mentioned.
Accelerators like YC have made a few of the largest income in enterprise capital, mentioned folks accustomed to the companies.
In 2007, a fledgling file sharing service known as Dropbox entered YC, which on the time invested as much as $20,000 for a roughly 7 per cent stake in firms it accepted.
Five years later, YC offered half of its stake within the firm for about $100mn, in line with folks accustomed to the transaction. YC used the proceeds to fund new batches of firms by way of 2018, one of many folks mentioned.
YC has continued to attain hits. Fifteen firms backed by YC have gone public, together with Airbnb and Coinbase. At least 5 dozen have been valued by traders at greater than $1bn. In January, YC introduced that it might start investing $500,000 in every new firm, a fourfold improve from the earlier quantity.
However, accelerators have confronted persistent questions concerning the worth they supply in trade for funding, which could be tough to measure. YC’s most up-to-date programme admitted 414 firms unfold throughout 42 international locations.
“Even if they experience great success, it’s not necessarily because they’ve done anything to the founders,” mentioned Susan Cohen, an assistant professor on the University of Georgia’s enterprise college, who has studied accelerators. “It could just be that they found great teams.”
Hyper guarantees to assist founders acquire consciousness for his or her companies by way of Product Hunt, which has hundreds of thousands of month-to-month customers. Executives preserve an inventory of firms, equivalent to software program start-up Airtable, that debuted their merchandise on the web site and later went on to lift billions of {dollars} in enterprise capital.
“It’s really hard to build a start-up that goes and grabs people’s attention,” mentioned Sriram Krishnan, a associate at Andreessen who sits on Prologue’s board. “The playbooks we had seven years ago, they’re not the same playbook today.”
The accelerator additionally guarantees introductions to prime enterprise capitalists. Investors in Prologue are “probably going to look at you a little bit more favourably because they have that relationship”, mentioned Akshaya Dinesh, whose e-mail advertising start-up Spellbound was a part of Hyper’s first programme.
Hyper sometimes invests $300,000 for five per cent of an organization’s inventory, however not all firms have acquired the identical deal. One founder, who requested to not be named discussing personal phrases, acquired $500,000 in funding at a $9mn valuation. Hyper mentioned it makes “very rare exceptions” to its normal deal.
In the agency’s early days, it leaned on trusted networks to seek out new firms. Out of roughly 1,500 candidates for its second season, it accepted solely two. The different 13 firms entered by way of relationships to staff and different connections within the start-up world.
Khan mentioned the downturn would current a possibility to work with firms which have “sustainable growth and real numbers”. Dropbox entered YC on the verge of the final monetary disaster, he added. “I see that no differently than where we are today.”
Source: www.ft.com