The Value of Startup Accelerators

Background Reading:

Boston is known as an epicenter of top-tier universities. While most people think that the main purpose of top universities is to educate top students, from a societal perspective there is a very strong argument that, relative to lower-tier universities, the main role of selective universities is actually sorting, not educating. The empirical evidence for this is that students who are accepted into top universities but choose to attend lower-ranked schools on-average perform just as well economically as those who went on to top universities. Top universities serve as valuable signals to employers and other players of the caliber/innate talent of a particular student, even if lower-ranked schools could have done just as good of a job at educating that student.

On that same note, top-tier startup accelerators are the elite universities of tech ecosystems.  As tech entrepreneurship has become more widespread and the number of entrepreneurs has gone up (as the cost of starting up has gone down), tech ecosystems have become far more “noisy.” More pitches, more teams, more ideas, which overall is a great thing, but it makes it a lot harder for investors to find the investment-worthy companies. Not unlike employers sorting through millions of students.

Here in Boston, Techstars is arguably one of the most notable accelerators, although there are others here and throughout the country. MassChallenge is larger, and less selective. See Seed Accelerator Rankings for more national info.

Ask founders about the educational value of accelerators, and feedback will vary; but almost universally founders will say that the top ones pay for themselves simply from the network they open up for you by putting their stamp on your startup; just like a Harvard or MIT.

Must you attend a startup accelerator to succeed? Clearly not. The large majority of successful companies we work with never touched an accelerator. But for founders lacking strong connections to investors and other key players early on, they can dramatically accelerate a startup’s ability to find capital, advisors, etc.; and should be strongly considered.

Legally Forming Your Boston Startup

Background reading:

If you are in the formation stage of your startup, here are a few key points to keep in mind to avoid legal pitfalls.

Formation/Organization and Incorporation are not the same thing. 

When you file a “Certificate of Incorporation” in Delaware, you are “incorporating” your company. It takes a few minutes, and a small filing fee, to do it. It also leaves 99% more work to do before the company is properly “organized,” including from an equity, control, and IP perspective.

When comparing offerings from different firms for organizational legal costs, pay close attention to what is actually included in their “formation package,” because it’s easy for firms to leave things out in order to appear to offer a lower price; while making you pay more later on to get everything done properly.

Don’t assume you want a “standard” Delaware C-Corp.

If you read info from Silicon Valley, you’d think 100% of tech startups are C-Corps. That’s not true. Yes, a majority are, but your particular business model and growth trajectory may make it a less obvious choice. See: More Tech Startups are LLCs. 

Be aware of fully automated options.

There are automated and safe options like Clerky, if you are comfortable with a fully template-based structure with no customization whatsoever. If keeping legal costs to an absolute minimum is a top priority, Clerky is far safer than a DIY project with Word-based templates.

Tech entrepreneurs should not use LegalZoom or Rocket Lawyer, both of which are designed for non-tech small businesses (think coffee shops), and lack much of the documentation you’ll need.

Most startups hire law firms. Hire one right-sized for what you’re building in the next 5 years.

See: Checklist for Choosing a Startup Lawyer and Why Startups hire law firms, not a lawyer.   Most startup-specialized firms have formation packages that will allow for more flexibility/customization (and guidance) than an automated formation, without incurring excessively high costs.

Why so many Boston Startups incorporate in Delaware

Background reading: Should I incorporate in my home state or in Delaware?

Why has English become a uniform standard for business language around much of the world? Because without a common language, it can be incredibly inefficient for companies doing international business to communicate. 

In the United States, Delaware has evolved to become a kind of national standard for corporate law. Having a standard used by everyone around the country streamlines deal-making, and reduces legal fees. 

A large majority of angel and VC-backed tech startups in the U.S. are incorporated in Delaware, regardless of their physical geographic location. That’s why serious startup lawyers in any U.S. state are very familiar with Delaware corporate law. 

There are of course other reasons why Delaware is preferred by so many companies and investors, much of which are explained in the above-linked post. But the main point for founders to understand is that scaling Boston startups have good reasons for starting out in Delaware.

Delaware can save you money long-term.

Given how much of the startup ecosystem is built on Delaware corporation law, all serious startup lawyers have large sets of form documents and processes built around Delaware law. Taking advantage of those forms and processes will save you legal fees.

Both in the short term and long-term, Boston founders intending to build companies looking to scale faster than a typical small business should strongly consider Delaware.

Sidenote: See also: Not Building a Unicorn for a discussion on how, while being a “startup” means going after some amount of scale, it doesn’t have to mean a Silicon Valley-style hyper growth trajectory.