A Game Changer for Top Tech Founders: Neo Residency
For the most sought-after tech founders, the prestige of a top accelerator program can often come with a hefty price – a significant stake in their startup. This is where Ali Partovi, veteran investor and CEO of venture capital firm Neo, aims to provide an alternative. Partovi is offering the mentorship and community of an elite accelerator program without forcing leading emerging tech leaders to give up 7% or even 10% of their companies before they even get started.
Introducing Neo Residency: A New Kind of Accelerator
Ali Partovi, renowned for early investments in companies like Facebook, Cursor, and Kalshi, has recently launched Neo Residency. This new, competitively structured program combines Neo’s four-year-old accelerator with a special track for current students. Partovi told TechCrunch that the conditions offered by Neo Residency are so founder-friendly that they are “not even comparable to any other accelerator.”
Neo Residency’s Offer to Startups
The Neo Residency program offers an investment of $750,000 through an uncapped SAFE – a Simple Agreement for Future Equity. This type of agreement allows an investor to receive a stake in the company at a later date, usually at the time of the next funding round, in exchange for providing funds now. The amount of equity the investor receives is tied to the valuation of the company at that future date. This approach contrasts sharply with the fixed-percentage deals typical of other accelerators.
For example, if a startup raises its next funding round at a valuation of $15 million, Neo’s stake would be 5%. But if that valuation hits $100 million, Neo’s stake drops to just 0.75%. This arrangement allows Neo to take the risk upfront, making it highly friendly to startups.
A Comparison with Other Accelerators
In contrast, other accelerators such as Y Combinator and Andreessen Horowitz’s Speedrun program operate on different models. Y Combinator typically takes a fixed 7% stake in the company for $125,000, with an additional $375,000 invested in an uncapped MFN SAFE scheme. Andreessen Horowitz’s Speedrun program typically invests $500,000 for a 10% stake in the startup via a SAFE agreement, with another $500,000 if the next round is raised within 18 months, regardless of the terms agreed upon by other investors.
More Than Just Equity: The Appeal of Neo Residency
Neo Residency offers more than just an attractive equity arrangement. Founders participating in the program will spend three months in Neo’s San Francisco offices, attend a two-week bootcamp in the Oregon mountains, and receive mentorship from around 30 experienced operators, including Russell Kaplan, president of Cognition, and Fuzzy Khosrowshahi, CTO of Notion.
The program also boasts a reputation for selecting high-quality founders, which in turn garners respect from seed and Series A investors. Companies that have gone through the program include Moment, a fintech company that raised $56 million from investors like Andreessen Horowitz, and Anterior, a healthcare AI startup backed by NEA and Sequoia.
Supporting Future Superstars
Neo Residency also supports students with a passion for entrepreneurship, offering an unconditional grant of $40,000 to selected individuals or small teams, allowing them to take a semester off to work on a project. Although there is no requirement for these students to drop out or start a business immediately, Partovi hopes that they will be inspired to launch their own startups and seek funding from Neo when they do.
Neo plans to keep the program small and elite, with two annual cohorts of no more than 20 teams each, comprised of a mix of active startups and student projects. This approach is in line with Neo’s confidence in its ability to attract and select future superstars, a faith that has been validated by its past successes, such as its early investment in Cursor, now valued at nearly $30 billion.
Source: TechCrunch
