Techstars & Franchises

Last week Techstars announced their new “Equity Back Guarantee” that essentially allows founders in the program to choose whether or not they get their equity back at the end of each program. We discussed this on the CB Insights newsletter a bit, but I wanted to focus on the section about the franchise model and profitability.

Techstars is the #2 accelerator in the world in terms of brand. What they are missing, that Y Combinator, the de-facto #1 accelerator, is not, are big exits and valuations. To my knowledge Techstars has yet to have any $100M+exits, and none of their portfolio companies are anywhere close to reaching the status of Dropbox, AirBnB, or Stripe (some of YC’s top alumni). By franchising out the business model, it shows a shift in both economics as well as incentives long-term.

Techstars receives a fair bit of money for each franchised accelerator, and also gets a piece of the upside without having to risk nearly the same amount of capital as before. This model essentially allows them to build the brand and subsequently make money, without them or their LPs taking on the financial risk that other accelerators do.

While the brand is now more well-known, has quality suffered because of it? Honestly, its too early to make rash judgments, but like any business owner who contemplates a franchise model, at some point it becomes more about profits, and less about the mission or quality.

This originally appeared in the TLW newsletter. Sign up here.

Add comment