The Iterative Deal
We have a standard deal for all companies accepted into the accelerator. We invest US$150K using a “post-money” SAFE in return for 10% of your company. We rarely make exceptions. We modeled this after YC’s standard deal terms - which allowed them to scale quickly and build a massively impactful founder community. If you received a term sheet from us, here’s how to think about it.
More Than Money
Remember that unlike traditional investments, we spend a lot of effort and time helping your company (see program details). As Paul Graham from YC suggests here, the best way to think about our deal is to think about whether our involvement will raise your company’s average outcome by more than 11%. If the answer is yes, you should take the deal.
Let’s do the math. Since our deal is 10%, you need an outcome better than 1/(1-.10) = 1.11 or 11% for it to be worth it. Let’s say we improve your outcome by 12%. You come out ahead because the remaining 90% you hold is worth .9 x 1.12 = 1.25. If we improve your outcome by 50%, you come out way ahead .9 x 1.5 = 1.35.
We think it’s an almost certainty we will increase your average outcome by more than 11% by helping with 3 things.
- Guidance – Often, the limiting factor to a companies growth isn’t capital but the founders. Therefore the founder’s rate of improvement is directly correlated to the companies growth. That’s what we help with. We help you prioritize, avoid pitfalls, teach you how to think about your current challenges and prepare you for the challenges you will soon face.
- Community – We designed Iterative to be the best founder community in Southeast Asia. Specifically, this means a community of founders in various industries, sectors, countries, and company stages that help each other. As challenges and questions come up, it’s likely someone in the community can help.
- Investors – Some founders are good at raising money, and some are not. What’s surprising is raising money is a skill you can get significantly better at if you know-how. We will likely increase your average outcome by more than 11% simply by teaching you how to fundraise.
Accelerator investments in SE Asia are all over the board, ranging from S$75k for 10% to S$100-150K for a variable percentage. The majority of accelerators also charge a program fee, which means you’re not getting the full investment amount.
We wanted to make our investment brain dead simple. We invest US$150K for 10% on a “post-money” SAFE note (simple agreement for future equity). We invest more, don’t charge anything in return, and are upfront about how much of the capital you’re selling. We think transparency wins when it comes to long and productive relationships, so we’re upfront with our terms. US$150K should be more than enough to run your company for 5-6 months before you raise your next round of capital either during our demo day or shortly after.
The SAFE converts into preferred shares when your company raises your next round of capital. It’s also important to note that Iterative’s investment will be diluted by any future investments and a new stock option pool required by investors in your next round. We think it’s important to be aligned with founder incentives once you are officially part of your company. We’ve seen weird terms in SE Asia that don’t dilute with new money. We think that’s wrong. To be precise, with financing, the order of operations is:
- All SAFEs convert to preferred shares
- An option pool is increased to a pre-agreed percentage of the company
- New money investors purchase preferred shares at the price per share of the preferred stock sold in the round.
Iterative will own 10% after step 1. Then the conversions in steps 2 and 3 will dilute Iterative ownership down to less than 10%. Iterative then has participation rights via the pro-rata agreement to invest new money along with the round.
Iterative Program Agreement
Along with the SAFE, we’ll have you sign an Iterative program agreement which defines our community guidelines (our goal is to build the most trusted founder community in the ecosystem), along with terms we think are important to protecting founders (vesting in case of founders break up), etc. This is also where Iterative sets out its pro-rata rights.
The majority of our investments are Singaporean entities so we’re well-versed in these transactions. This is unfortunately not the case for most US funds yet, but we think it’s quickly changing. We can also invest in US and Cayman entities. If you don’t yet have legal counsel, we’re happy to introduce you to great lawyers to get you set up properly. We’ve also dealt with Singapore to US and US to Singapore expansions if that becomes a need at some point.
We designed our terms to be a “fixed price” and non-negotiable to optimize for simplicity. We understand different companies have different situations. Exceptions are rare but not impossible. Most companies will not get an exception unless (1) you’re very far along - this typically looks like >$500k in ARR (not GMV), or (2) you need somewhat more complicated terms to ‘fix’ your existing cap table. Unfortunately, the latter happens more often than we’d like, given the abundance of non-standard terms issued in SE Asia. If you believe you have a unique situation, we are happy to talk about it.
We work very hard to make our terms founder-friendly and simple because that’s what we would want as founders ourselves. If you have any questions or concerns, please let us know. We look forward to a productive (and fun!) relationship building your company.
If you have existing investors, the best way to help them understand our value add is to tell them why you think our involvement will help you get a higher valuation. Oftentimes we see existing investors focus too much on percentage ownership. That’s understandable since they haven’t met us. Because we invest quite early, most cap tables consist of small angel checks. Keep in mind that raising on a $5M cap from angels doesn’t mean you’re valued at $5M. It’s simply a cap that gets priced at a future round. Your investors should think of our involvement as a pricing signal, just like how Series A investors after us don’t think about our investment as pricing your next round.
If you have existing investors who you think might be unhappy with our deal, we recommend talking to them. Like the More Than Money section, talk to them about why our involvement will increase your valuation more than our 10% ownership stake.