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Techstars debuts new fund for companies too early for its own accelerator

·3-min read

Techstars, a startup accelerator born in Boulder, Colorado, has always been comfortable carving out niches. Unlike perhaps its closest competitor, Y Combinator, Techstars has gone the divide and conquer route of early-stage startups support: Instead of one massive batch, it has dozens of dedicated programs all over the world, ranging from Tel Aviv to Lagos to Oak-Ridge Knoxville.

While the geographic expansion has been aggressive, Techstars today announced another way it's changing how it invests in startups. Rising Stars is a new pre-seed, pre-accelerator fund led by Saba Karim, head of Techstars startup pipeline, and Neal Sáles-Griffin, managing director of Techstars Chicago. Sticking with the Techstars ethos of building accelerators for overlooked geographies, Rising Stars is focused explicitly on backing underrepresented founders of color in the United States.

Per SEC filings, the Rising Stars fund has already closed $5 million in financing from limited partners, although sources familiar with the matter say that the team has closed $8 million and is targeting a final fund size of $10 million. Backers of the fund include Twitter, Amazon and Sandhill Angels. Rising Stars will cut $100,000 checks, in exchange for around a 7% to 10% ownership bite, compared to Techstars’ standard accelerator deal, in which it offers up to $120,000 in exchange for 6% of a business. Rising Stars is a pricier check for founders, but an earlier one too.

Sáles-Griffin said that this is Techstars' first pre-seed fund, but may not be the last. The future iterations of this program could focus on international founders, he said via e-mail to TechCrunch.

It's wild that the world of early-stage startup investing has gotten so broad, and full of money, that even accelerators — programs literally launched to help startups get off the ground — have want to fund entrepreneurs even earlier. In other words, the earliest are going earlier. I'd argue this change is because of the Tiger Global effect, otherwise known as the trend of late-stage investors writing earlier and smaller checks to get target ownership. As a result of more money heading into seed and Series A rounds, accelerators and traditional early-stage investors may find it easier to get returns if they go earlier and find startups before they are ready for a Tiger term sheet.

A focus on inclusion is a differentiator in and of itself — so it's smart that Techstars is opting for its first pre-seed fund to be targeted toward those who need it most. "Friends and family funding is a critical early-capital source for many startup founders … while great ideas can come from anywhere and anyone, not everyone has a built-in network they can tap into to bring their company to life," the company wrote in a landing page about Rising Stars.

But, let's be real: Backing founders before they're even ready to call themselves that may be a new-ish skillset for Techstars, which has historically backed companies that are a tad more developed. The founding team's expertise can very reasonably scale backward and hopefully to redefine what investment criteria Techstars itself uses within the new program. Sáles-Griffin said that they're looking for folks who haven't yet raised capital and are "just barely out of the idea/development stage of their business....they might be on the cusp on quitting their job to launch or just coming out of college or grad school."

Techstars says that "selection for Rising Stars puts these founders on the best footing for future consideration to join one of our 50+ accelerator programs located throughout the U.S., and around the world." Relatedly, Techstars teamed up with JP Morgan to create an $80 million fund to back founders who identify as Black, Hispanic and Latino, Indigenous American and/or Pacific Islander.

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