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Summary:

Lars Hinrichs, who founded the European social network Xing, has launched a new startup fund/incubator called HackFwd, which calls itself a “pre-seed investment company.” But some say the fund’s asking price is too high: 27 percent of a startup’s equity in return for an initial investment.

Lars Hinrichs, who founded the European social network Xing and sold his stake in the company to German media giant Hubert Burda Media last year for $57 million, has launched a new startup fund/incubator called HackFwd in partnership with several members of the European startup community. The fund describes itself as a “pre-seed investment company,” which Hinrichs says has the ability to give startups the connections and resources they need to get to the next level. But doing so comes with a hefty price: In return for its initial investment, HackFwd asks for 27 percent of a startup’s equity.

This sparked some critical reaction on startup-focused discussion forums such as Hacker News, which is associated with Paul Graham’s Y Combinator — a startup incubator similar to HackFwd. Y Combinator takes anywhere from 2 to 10 percent of a startup’s equity, although companies are only in the program for three months. TechStars, another pre-seed startup fund, takes between 6 and 10 percent. Hinrichs said in email that the 27 percent stake was justified for a number of reasons, including:

  • We give much more money than ycombinator. It’s a commitment for one year instead of 3 month. If you do [the] math it’s the same as ycombinator.
  • We have highly specialized human resources available for the startups… together with the board, we offer knowledge you can’t buy to get you faster to success.
  • Since we are also marketing the companies through our plattform we assume for those companies who actually need more funding, that we can [offer] better and more lucrative terms for round 2.
  • We are looking for companies who just make good revenues and will be shortly cashflow positive and who actually don’t want another round.

Hinrichs said the fund markets itself as paying the salary of a founder because that’s what keeps many European entrepreneurs from starting new companies. “We bring people into entrepreneurship [those] who wouldn’t do it if this offer doesn’t exist,” he said, adding that he and his partners “tested this with over 40 geeks from around the world and got positive feedback.” He added that the European startup community is different than that of the U.S., where there is a lot more competition for funding. “We are benefiting from market inefficiencies and the growing funding gap” in Europe, he said.

The partners behind the fund include the former head of European recruiting for Google, a former global business analyst with UBS Wealth Management in Zurich, the former CEO of Burda Digital and the creator of OpenOffice. HackFwd’s site has a PDF that outlines what founders get in return for an investment from the fund, a prototype of a contract called “the Geek Agreement” with explanatory notes, as well as a “dilution calculator” founders can use. There is also an amusing diagram of the average startup’s decision tree and a humorous video introduction with a voiceover by British actor and comedian — and celebrity Twitter user — Stephen Fry (embedded below).

The document describing what HackFwd offers says that the fund promises to move quickly when a startup gets referred to the group (startups can’t apply, but must be contacted by someone associated with the fund). HackFwd says that after filling out a “business model framework” documents, a startup may be asked for a formal interview; if so, the fund commits to “give you a clear answer within 72 hours of that meeting.” It also promises to handle all the legal and administrative duties required, and to help market the startup through its network.

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By Mathew Ingram

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