Startmate Accelerator investment terms from Summer22 onwards

Lauren Capelin
October 14, 2021
Dollar bills as paperplanes

We're updating our standard investment terms to $120k at a $1.5m post-money valuation for founders that haven't raised a prior round, and we'll match the latest valuation of founders who have raised.

This will come into effect from Summer22 onward. Applications are open now.

The context

Over the last five years, the startup ecosystem across Australia has grown in leaps and bounds. From the exponential growth of new startups and the incredible scale of some of our most significant technology businesses, to the explosion of talent looking for roles in the sector and the emergence of new funds, all backed up by the deepening pockets of the original guard... so much has changed to make this one of the strongest ecosystems globally.

But one thing hasn’t changed, and that’s Startmate’s standard investment terms for companies accepted into our Accelerator. 

Since 2017, we have offered a $75k cash investment at a $1m post-money valuation, meaning Startmate becomes a co-owner with 7.5% equity. The intention of this investment is two-fold.

  • To give startups coming through the Accelerator about six months of runway to get through the program, and position themselves for a funding round, or similar milestone.
  • To enable our mentors to have a meaningful stake in each cohort in exchange for their time and capital contribution, meaning that incentives are fully aligned.

Why change the investment amount?

While any Startmate alumni company will attest that the value of Startmate lies in the incredible mentor and peer support community more so than the cash investment, there is still a financial reality to growing a business.

In 2021, the world is generally more expensive than it once was, and $75k is no longer enough to provide a six-month baseline for founders at this critical point in their company’s development, meaning companies are making choices to raise earlier than they might like. 

Based on conversations with Startmate founders, average burn through the program for a company with no employees is about $25k per month.

Ultimately, we believe our investment should equip founders with enough runway to both get through the program and comfortably reach their next meaningful milestone (revenue, fundraising or otherwise) roughly two to three months post-program.

Why change the valuation?

The investment amount and valuation are of course inextricably linked, in that they equate to the percentage of ownership Startmate holds for its investing mentors.

To raise the investment amount without adjusting the valuation would, of course, result in more aggressive dilution of early-stage founders, which we fundamentally don’t think is the right thing to do.

At the same time, the bar of what an ‘early-stage startup’ looks like has been well and truly raised over the last few years, as we see deep domain networks and expertise, experienced operators and repeat founders coming back to start something new.

In short, Startmate’s existing base valuation of $1m had begun to feel less competitive in our efforts to attract the region’s best new startups.

We ultimately think that holding an ~8% stake in each of our portfolio companies gives our mentors meaningful ‘skin in the game’, while ensuring the founders have enough control of their cap table at such an early stage.

So what are the new terms again?

From Summer22 onward, Startmate will invest:

  • $120k on a $1.5m post-money SAFE* for founders without a prior valuation; or
  • $120k, matching the last valuation and terms for founders who have previously raised

What if I raised more than a year ago?

Every now and then, a company’s circumstances don’t fit neatly into the above two scenarios. We wanted to create a clearer framework for how to approach these cases to streamline and remove any ambiguity from the selection process.

For cases where the valuation is over six months old and there has been significant revenue traction up to the time of application, Startmate may invest:

  • $120k on a SAFE note at the lower of either a 30% discount or $7m pre-money valuation cap on the next round.

Through this third option, we think we can best align incentives between founders, our mentors and investors and Startmate to offer fair valuations at any point in a startup’s journey, reinforcing that you are never too early or too late to apply to be a part of the Accelerator.

What are we optimising for?

As always, our primary goal at Startmate is to attract the most ambitious founders across Australia and New Zealand, and changing our investment terms is a part of fulfilling that mission.

We are excited to be able to support our cohort founders with additional funding and more competitive valuation terms from the Summer22 intake, while ensuring our incredible mentor community is as engaged as ever to help unleash that ambition on the world.

*To understand the importance of the ‘post-money’ valuation, check out YC’s article from when they adjusted their own terms a few years ago. 

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