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Wednesday
Apr032013

Why does TSC Charge for its Resident/Pre-accelerator Programme?

This is a question that keeps coming up quite often and while we have addressed it (individually), it made sense to talk about the logic behind it:

First of all, the Startup Centre follows a much radically different path to accelerating startups. 

If you are curious you can see the visual bit at http://www.thestartupcentre.com/model

We have a three phased approach of building PrototypesProduct and Startups. The first being via In50hrs, The second via the Pre-accelerator/resident Programme and the last being via the Accelerator.

The uniqueness of the Startup Centre Programme is the fact that we value the process of the startup finding product-market fit, more than the startup finding funding. it doesnt mean we deter funding, its just that we believe if a startup finds product-market fit, funding will happen, but not necessarily the other wayaround.
 
Now to the question: Why do we charge for the Pre-accelerator Programme. Contrary to popular belief, we aren't the only ones. 500 Startups charges 3000$ a founder for the 3 month accelerator Programme. So there is company in where we stand, but as low cost and affordable as we are (INR 50,000 equalling 1000$ for a 3 founder team for six months - which makes it comparatively $45 a month per founder), here is our reasoning:

1. We are not funded by a corporate. Or by a VC Firm.
We are a group of individual entrepreneurs putting our hard earned money behind this . We dont intend to use the startup centre as a means to use the startups as the products we are selling. Which severely restricts what all we can do. For lack of an obvious alternative, we'd like the residents who use the space to cover for the cost / atleast part of the cost. Fair right?

2. We are a startup. And swallowing the costs of a real estate all by ourselves, is not sustainable. We are a private limited entity and we are two years old. We have a board, and we have budgets and we have an entrepreneur slogging his heart out, just as you. No different.

3. Real estate costs and running a space are not for the faint of heart - there are some real costs attached to it. Details of what we incur are as below (for the sake of transparency)

  • Cost of Rental (2500 Sq Feet Office in Egmore) - Rs. 1.5L Per Month
  • Cost of Electricity (Once in two months) - Approx Rs. 35000
  • Cost of Internet (Two Lines - One for default and the other backup) - Rs. 10,000 / month
  • Cost of Housekeeping - Rs. 5000 / Month
  • Cost of AMC - Air Conditioning / UPS - Rs. 40,000 per year
  • Maintenance by the Association - Rs. 10,000 Per month
  • Maintenance Cost (once in three months to fix broken chairs, supplies etc) - Rs. 15,000
  • Telephone - Rs. 5000 per Month
  • Cost of Coffee / Snacks etc during networking meets, hosting of free meets for Chennai OCC / Chennai Geeks etc - Rs. 2000 / Month


I am not adding the cost of amortization of furniture, equipment etc that will have to be written off in two to three years and things like the UPS batteries that will have to replaced. UPS batteries alone cost about Rs. 1 Lakh (but thats a once in three / four year expense, so will add to about Rs. 25,000 a Year). In due fairness we did get part of the furniture as part of the space, and the furnitures we did buy are negligible for will not add the costs to it.

Add to it the deposit of 10L, which can be said to have an opportunity cost of Rs.1L a year on interest value.

Number of seats that we have - 30.
Total Cost per year - Rs. 26, 19,000
Cost per Month - Rs. 2,18,250
Cost per seat per month - Rs. 7275.

Now this is assuming that we have a 100% occupancy. Most people when they do real estate planning will plan for a 60% occupancy. So if you do that, it roughly comes to  Rs. 12,000 a seat.

A Lot of Startup Entrepreneurs, want it at around Rs 1000 a seat. I dont know what to say, than to smile when they do that.

What we charge for, at The Resident / Pre-accelerator Programme:

We give the space at 50,000Rs (upto three member team) for a six month period. If you ARE a three people team, that comes to about Rs. 2800 per month per seat. If you are a one person founder, that comes to Rs. 8000 a month - that is still cheaper than any business centre you can find in a city like Chennai, with the amenities you get access to (not including the mentorship) 

Somehow Vijay Anand doesn't think that is value-add enough. So we have partners like Amazon Web Services, Google, Softlayer and a dozen other stack partners who provide extra credits for these teams. Amazon provides $4000 (Rs. 2L) worth of credits. Softlayer Provides $1500 (Rs 75,000) and Google Provides $20,000 (Rs. 10L) worth of credits for each and every individual team that goes through the TSC Pre-accelerator Programme.

This is totally discounting, the time and effort that the mentors spend in working with the teams in giving inputs and making introductions, and helping these companies to find product-market fit. All of that is discounted at zero.

For this radically obnoxious low cost, you get an office address in the middle of the city, an amazing set of mentors, Internet, Air condition, UPS, a Library (and access to books and HBR and likes), and get to spend about six days a week in the happening hub of the City. And I didnt mention the world famous bread omelette in the city, just downstairs from the building.

You still think we are charging atrociously? We'd like to know what you are smoking :) Please do share.

You know what? As ! write this, I realize we are seriously underpriced. I just hope none of our board members stumble on this.


Disclaimer:

1. The Google credits are only extended to teams that are a registered startup. So if you arent incorporated, it is hard to avail that.

2. We also do take a 1% equity in the startups for lieu for the service apart from the fee.

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