By Stephen McCann – Posted October 20, 2015 – From SOSV’s Blog
If you’re considering applying or have already applied to one of our accelerator programs, congratulations! At SOSV, we are very excited to work with each new team, and we like to make sure everyone is on board with the terms of our collaboration. So, in the interest of transparency (something we care very much about!), here’s an outline of the steps in our process: what applicants in our accelerator programs can look forward to from the time their application is submitted, to the start of their program.
Let’s use our HAX hardware accelerator as an example.
Application Process
Applications Submitted Online (including video)
HAX accelerator receives over 500 applications each session. After an initial first review, we contact the most promising candidates.
Above all, there are some key traits we love to see in a HAX applicant:
Team
We look foremost for a strong and skilled team. We like a team who:
- Is extremely capable and we feel can deliver
- Has great market insight
- Has the ability to listen, take input, and use it effectively. That means to carefully consider the many inputs HAX and the SOSV network will have, and make up your own mind. We will work with you to eliminate blind spots and uncover opportunities.
- Is resourceful, intellectually honest and persistent. Those are things we love. To finish first, you must first finish!
Product
We like to see a working prototype for a product that:
- Solves a real problem
- Has great potential
- Is of genuine interest to our partners
A working prototype is important. What “working” means varies, but it is useful proof. We don’t mind ugly if it’s key element works, or is close to working.
Typically the “product” part and the demo is the first thing we look at. It tells us lots as it shows what you can already build, and the technical challenges you face. It also already suggests a market (and we are familiar with quite a few):
- Large potential market: Can your company be worth $100M+ in a few years time?
- Real market: Is the market only in your mind and in the mind of analysts? We prefer when you’ve talked to potential customers and they’ve told you they wanted to buy your thing yesterday, even half-broken.
- Niche market: You can start a niche tactically, if the potential behind this is large.
- Existing market: If you already have sales, even better! Maybe our Boost program is a better match?
Check our portfolio and mention any concerns you have about competing with our existing investments. It’s a concern for us too.
HAX applicant teams come to us in varying stages of development: very young companies with fresh technology, teams that already have some traction in their market but need to expand their sales or reach, and even companies who have promising technology but haven’t quite found their market. We always have a mix in any accelerator class.
This process takes our partners an intense few weeks, after which around 100 of the most intriguing applicants move on to the next step: a thorough interview.
You’ve Applied. What Happens Now?
We’re reviewing applications on a rolling basis. We will contact you if we feel there is a match. We typically pick the top 10-20% out of all applications for further conversation. The best applications include background on the founders, the idea, and investors, plus a vital video component. When we select applicants, it’s due to:
- A capable founding team which has great insight and vision
- A video which clearly and concisely makes the business case for the idea
- A barrier to success for their technology that SOSV can provide expertise in: science, software, or community, for example
- Technology which is a good fit with our existing portfolio
Once we feel that these traits are in an applicant, we set up initial calls with our HAX partners.
You will have questions, and we will also have questions.
We will get a sense if it’s a match on both sides. If we’re both happy with the first call, there will generally be a second call with a different HAX partner for a second opinion.
We know waiting is not fun, but unfortunately it is necessary, as candidates don’t all apply at the same time. We need to interview many teams and founders, across all time zones.
Acceptance
Following a full review, HAX selects 15 teams and sends a Letter of Intent to participate in the HAX accelerator and a Founder’s Agreement. These are the accepted teams for the next HAX class.
Letter of Intent
The Letter of Intent outlines the SOSV offer to accepted applicants for the accelerator program. It offers a blueprint of what’s required of participants, and what they can expect from SOSV in terms of both investment and support during the program. Participants must agree to the terms in order to move forward. Some important details are specified:
Information Needed From Participants
- Details about the structure of the company
- Where the company is incorporated (we can help move toward incorporation if necessary)
- How many shareholders exist currently and if there are any future dilutions
- Confirmation that the company owns all relevant intellectual property
- If you are carrying overhanging debt, binding agreements or other legal contracts which will be unpleasant to find out later on (it’s not necessarily a deal breaker, but we encourage transparency as early as possible)
Expectations of Participants
- Complete participation in the program and 100% dedication to it
- Full-time team presence in HAX accelerator offices which allows teams to take full advantage of the resources and support available
- Respect toward HAX accelerator staff and mentors whose job it is to push companies to the next level
- Respect toward other HAX participants who may be in the offices as well
Financial Agreement Between SOSV and Participants
The Letter of Intent lays out the important details of the financial agreement between SOSV and the company’s management team. The SOSV commitment level (dollars offered plus program resources and support costs) is translated into an equity stake in the company, usually 6% (for HAX). The percentages and dollar amounts are based on a formula applied across all portfolio companies.
The Letter of Intent also maps out the future high-level investment terms which will be detailed in theShare Purchase Agreement which is the final agreement between SOSV and HAX accelerator participants. Some of these terms include a first financing right, pro rata rights, anti-dilution protection, liquidation preference, and more. If a Convertible Loan Note is agreed to, these particulars will be detailed in the Letter of Intent as well.
Once all parties agree to the financial terms and program commitment, the participating team signs the Letter of Intent and submits it along with any additional information requested.
SOSV then draws up the final Share Purchase Agreement. After this we’re ready to go.
Teams can start packing and get ready to take their businesses to the next level!
