Summary:

Up to €300,000 in seed funding and a pro mentor to boot? Sounds great – but it seems the equity demands for Deutsche Telekom’s new Berlin-based ‘incubator’ hub:raum are pretty fuzzy indeed.

T-Mo

Updated: Remember hub:raum, that Deutsche Telekom incubator we reported on last week? There was one outstanding question, which was about the amount of equity they want. And the answer appears to be, well… tricky.

Telekom’s German startup play (which is more of an accelerator, despite the ‘incubator’ designation) came hot on the heels of rival Telefónica’s Wayra. The Wayra proposition is pretty straightforward: seed funding of up to €50,000 ($66,000) per selected startup, with Telefónica getting 10 percent equity and first rights to future funding and marketing.

At hub:raum’s launch, the press release didn’t even mention equity. The website makes one reference to the telco getting a “minority stake.” And I’ve been hearing local players in Berlin saying that they understood Telekom’s not after equity at all.

But the idea that Telekom doesn’t want anything in return for its up-to-€300k seed investment never seemed plausible — and it highlights the confusing nature of the offer.

What’s the truth? One industry source told me that while Telekom “doesn’t take equity per se”, the mentor that you get assigned does get a fixed single-digit stake. What’s more, the startup only gets five to 10 hours a week from its mentor — anything more than that will require a further negotiation.

And that’s not all. It seems there’s a second chunk of equity involved here too:

“You get into the program and you have to choose a mentor, and that mentor does take equity,” the source said. “And you get an investment from T-Venture and you negotiate how much equity they take from that, based on what stage the company is at.”

I’ve asked Telekom what’s going on here, and I’ve not had a reply yet. Depending on the terms that finally get agreed between the startups and hub:raum, the deal may not be so bad. But startups will have to look hard into this gift horse’s mouth — because things seem a lot less clear-cut here than they are with Wayra.

Bad rep?

My source also pointed out that “people don’t like Telekom much,” as the telco can be “very painful” to deal with. No kidding.

The hub:raum launch at NEXT Berlin 2012 certainly generated a fair bit of low-level grumbling. When the show’s pitch contest winners, Squadmail, went onstage to collect their €10,000 prize, they were informed that they had to claim it through the hub:raum program — the existence of which, remember, was only announced at the show.

I don’t know what investment strategy Squadmail’s been working on in the background, but chances are that twist came as quite a surprise.

But hey, suddenly finding yourself in bed with Telekom can’t be all bad — the firm’s a giant in its field with the marketing nous to match, right? Right? Try googling “hub:raum”. Perhaps someone so smart could have chosen a better name…

Update: A spokesperson for hub:raum responded to our request for more clarity.

When startups are admitted to the hub:raum incubation program they are being offered an integrated set of contributions. This set consists of services (e.g., office space and access to corporate resources), funding and mentoring. All three elements constitute the hub:raum incubation program and are not being offered separately.

Services and funding will be provided by hub:raum/Deutsche Telekom with T-Venture having the role of the investment vehicle. Any equity stake hub:raum will get for the combination of services and funding will be held by T-Venture.

Valuation and respective minority stake holding comply with market standards in the pre-seed and seed phase. The mentoring part will be provided by seasoned entrepreneurs. They will get a decent equity stake in return for establishing and maintaining an intense working relationship with the startup company. Equity will not depend on the hours spend with the company, however the mentor may want to increase his or her share by injecting some extra money into the startup.

Well, that clears it up then.

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