What We Want To Invest in at Stacks Accelerator

Stacks Accelerator invests in outstanding startup teams building on Bitcoin with Stacks. We provide $50k in funding and a 3-month mentorship program featuring some of the top experts in the industry. Our focus is on Web 3.0 and crypto startups in areas like DeFi, NFTs, and anything related to blockchain.

Applications for our first cohort finished and we had hundreds of high potential entrepreneurs apply. We accepted more than three times the number of promising startups that I would have considered a success for the first program, given the tight timeline and ramp up we did for this program.

All of the companies in our program are companies myself and our Venture Partners (Grace Ng, Alex Novosad) would personally invest in. We even had to turn away many startups we wanted to accept and would otherwise have invested in, which is really heartbreaking to have to do.

Companies who were already a part of the Stacks ecosystem and applied early had a huge advantage in our selection process. 50% of our applications came during the final days before the application deadline, after we had already given out nearly half of the offers.

If you didn’t get accepted this time, please do not let it dishearten you. Ultimately, an investor’s approval of your startup means nothing. No investor is capable of knowing you as well as you and your team know yourselves. If you didn’t get accepted for this cohort, we’d love to have you apply again in the future.

You can read this post as a set of guidelines for what we’re looking for and how we think. If you get more traction in your business and make your company more investable based on our guidelines below, our chance of investing in you is going to go up a lot.

For those who keep asking me on Twitter, we’ll be announcing the startups accepted to the first cohort of Stacks Accelerator in the next few weeks :).

What is Stacks?

Stacks is an alternative to Ethereum that allows anyone to write smart contracts and apps that operate on top of the Bitcoin network. It is secure, scalable, and enables magic powers that aren’t possible on any other blockchain. To learn more about Stacks, read my post Stacks Network Analysis: Build Your Web 3.0 Startup on Bitcoin. The project was initially developed by an incredible team and funded by YCombinator, Union Square Ventures, and many other top investors.

This picture alone should convince you to take a good look at Stacks
The key benefit of Stacks is the ability to build apps and smart contracts on top of Bitcoin

Teams We’re Looking For ✅

The team is the most important part of your startup. At Stacks Accelerator, we care a lot more about the team than the idea. If we think your idea sucks but your team is complete, determined, and able to pivot quickly enough to figure things out, we will fund you. In fact, we made offers to several teams in our first batch who fit this description.

Here’s what we’ve decided to look for in founding teams.

1. Technical Teams

The ideal startup team includes generalists with multiple skill sets spanning technology, design, and business. Ideally there’s three co-founders who can all code with one additionally being able to handle business and another design. That being said, the minimum is 1 strong tech founder and 1 strong business founder who both possess leadership qualities to grow their team.

This is because if you don’t have a tech co-founder who codes and you’re outsourcing your technology development, building a successful company will be difficult. In addition, the investors we want to introduce you to are very unlikely to consider investing in you.

2. Teams Committed Full-Time

Stacks Accelerator and the investors in our network are looking for founders who believe their ideas are the most important thing for them to spend their time on AND that they have a high likelihood of success. If you and your team do not want to go full-time on your project, do you really believe in it and care about it? And if you don’t believe or care about it why should anyone else?

Furthermore, the job of a founder is to build a company by recruiting the best people to join you on your mission. If you’re a solo co-founder, it casts doubt on your abilities to attract talent and grow your team. Don’t have a co-founder yet? Make a list of the top 5 people you’ve ever worked with or wanted to work with and call them up 1-by-1. You’ve gotta hustle and put yourself out there to succeed in startups.

3. Thoughtful and Balanced Equity Share

How you share equity with your co-founders tells us a lot about your company and the dynamic of your co-founding team.

When one founder has 90% of the shares and the other has 10%, that tells us one of two things: 1) the 90% founder wasn’t able to attract someone to the business he/she felt was strong enough to give more shares to, or 2) the other co-founder isn’t committed or passionate enough to demand more shares. We want to invest in strong teams where every member is strong, committed, and passionate, because that kind of team is more likely to succeed and persist through adversity.

This doesn’t mean we believe all founders should have the same number of shares. Quite the opposite! In fact, we believe whoever is CEO should have more shares and that founders should split the pie based on what everyone brings to the table. When we see a team where every member has the same percentage of shares, it makes us think there’s no clear leader, but that there’s not enough trust in the team to have difficult conversations and make difficult decisions.

While there’s no hard fast rule, 51/49 to 70/30 is a good range, depending on if one team member contributes more time, capital, ideas, or other resources in the beginning. For teams of three, 34/33/33 to 60/20/20 shows us that the team members are all bringing something important to the table, are committed, and are going to stick around.

This assumes all founders joined full-time within say 6–9 months of starting the business. You can tweak the numbers a bit further based on timing and other circumstances. The key thing is here we want to know why each founder got what percentage. If you’re the founding CEO and not willing to give more equity to your co-founders, it tells us they aren’t worth it OR that they aren’t passionate/committed enough. That’s not a good sign. You’d be better off bringing on someone else who’s more committed to the business and can bring more to the table!

4. Practical Plans with Strategic and Intellectual Flexibility

We like founders who can find an easy way to do something difficult. My favorite quote from Warren Buffett is, “I don’t look for 5-foot fences to jump over, I look for 1-foot fences to step over.” Startups are a fight against risk and uncertainty. This is why we want teams that start small, build MVPs, experiment, pivot, and find ways to do more with a lot less. This is about strategic thinking. It requires the ability to quickly iterate and respond to new information without bias. It requires the ability to look at your startup and company as a process. Founders with practical plans as well as strategic and intellectual flexibility are far more likely to succeed.

5. Ready to Rock When the Program Starts

This is kind of a catch-all for the teams that meet many of the criteria above that we don’t end up funding. The only situation where this would be the case is where we don’t think you can get things together quickly enough to be off and running when our program starts. If you need an extra month we’ll probably take you anyway, but an extra three or four and it’s not going to fit. If this is the case, and we’re doing our jobs—we will tell you this expressly. We may even make you an early offer for the next batch.

We believe at Stacks Accelerator that there’s no such thing as a “no”, only a “when.” We don’t have enough time to give feedback to all the people who apply for our program, but if we do interact with you it’s our goal to tell you what you need to fix in order for us to make an offer. We’ll tell you that you need a tech co-founder, to validate or pivot your idea, or to commit full-time to your project. If you’re one step away from being ready, we may make you an offer anyways. It’s really when there’s two or three things you need to do that it becomes too much for us.

6. Underrepresented Founders

This is not a requirement, but something we take into consideration.

Underrepresented founders refers to founders that belong to a group that the venture industry as a whole underinvests in relative to the percent of the overall US population.

Why are we looking for these founders? Various studies have been done around the VC industry that shows these founders generate higher returns. For example, First Round Capital found that among its portfolio companies, startups with female founders outperformed those without by 63%. That’s huge!

This doesn’t mean we’re going to reject founders who are overrepresented or treat them differently. It just means we’re going to make extra effort to do outreach to those founders who are underrepresented in order to build a welcoming and diverse community for all.

7. Already Building in the Stacks Ecosystem

This is not a requirement, but a big bonus.

When you’re already building in the Stacks ecosystem, and you have the Stacks community behind you, who are we to say no to investing in your project? Remember, we’re not just a financial investor but also a strategic and community-focused investor. Our mission is to build the best community around the creation of successful startups on the Stacks blockchain.

When you’re already on Stacks and part of our community, with a product live on Stacks, you’ve taken out a lot of the risk for us as an investor. Just like we want our founders to look for easy wins, we take the same approach. If choosing between two startups, we will always take a slightly less exciting opportunity that’s up and running on Stacks. It’s no different for teams with traction and users. Slightly less exciting but further along and less effort for us is a better deal as investors.

Ideas We’ll Always Be Looking For ✅

Let me just say it one more time, Team > Idea. But here’s some more rabbit holes for you to go down to think about ideas that will automatically be more attractive to the investors in our network; which makes them more attractive for us to fund. These are not one-off ideas, but themes that could lead to the creation of multiple promising ideas.

1. Differentiated, Consumer-Facing Products

We’ll always be interested in products that appeal to mass markets and are differentiated from all the other things out there. This gives Stacks the opportunity to reach more and more users. If you’re doing something like this, it had better be unique in the market and something that YOU are the right person to do. Since startups like this are hard, you should have prior experience that shows us you can be successful at it. You should also have a clear plan for a Minimum Viable Product that solves a strong customer pain and be comfortable raising a lot of money—you may need it.

2. Projects Uniquely Suited for Stacks

Stacks has many magical powers that enable it to do things other blockchains can’t—like (1) smart contracts that see something happen on Bitcoin and automatically trigger, (2) apps that use stacking to monetize or allow users to pay each other with the BTC earned from stacking, or (3) smart contracts where the source code can be read on-chain. These are just the things we’ve thought of today. If you take time to develop a deep understanding of Proof-of-Transfer and the Stacks to discover something Stacks can do that other chains can’t, you will be able to create a company that does things no others can. Meaning customers and investors are going to flock to your company.

Some examples of using these powers:

(1) Permission-less lending in BTC without the use of any middleman is possible with Stacks smart contracts through watching transactions on the Bitcoin network.

(2) Every SaaS product on the internet today can be rebuilt allowing users to pay with stacking rewards while keeping their original principal. Imagine a Patreon competitor built on Stacks where you just stack your STX tokens to send a stream of BTC to your favorite creator. Then, at the end of the year you still have your STX tokens which may even have appreciated in value.

(3) Consider apps where enabling your end users to read the smart contract source code on chain is the only way to get them to trust you enough to use your service—meaning they would never even consider using a competitor’s service.

3. High-Stakes Products

Stacks is unique in that everything settles to Bitcoin—the most secure and decentralized blockchain that exists and may ever exist. This means smart contracts on Stacks are much harder to hack or reverse. Apps where the users demand a high level of security and reliability will naturally be best suited and most competitive in the market when built on Stacks. Meaning again, customers and investors are going to flock to your company.

Ideas We’re More Likely to Be Skeptical Of ⚠️

I’ve now given you a ton of ideas that we’re looking for, here’s a list of the things that we’re going to be instantly skeptical of—meaning it will be harder to convince us and other investors to fund it. We recommend steering clear of these ideas for the vast majority of founders.

1. Solutions that only solve mild or infrequent pains, or have unspecific customers

The first question we’re going to ask about your idea is who is the specific customer and why is this a big problem for them. We’re looking for ideas that are painkillers for customers, not vitamins. If it’s not clear what pain you’re solving and for who, or it appears like that pain is mild or infrequent, it’s very unlikely your business is going to succeed.

2. Big visions without practical plans

We love entrepreneurs with a big vision, but it’s not enough to get investors to take out their check books. Ideas are a dime a dozen. Just saying, “the world will be like this in the future” doesn’t put you at any advantage to the other thousands of entrepreneurs out there. Great founders are the ones who have a specific plan for how to get from A to B in a step-by-step fashion.

3. Social networks ⚠️

People love social networks, but they are extremely hard to make successful and require a massive amount of capital to get off the ground. You need to solve a chicken-and-egg problem in order to build a social network that is valuable for users. This means the value from day 1 needs to be extremely compelling for people to use it when the network is very small. Think about it—you can name all the new social networks that succeeded in the last two decades in a short list—Facebook, Snapchat, Instagram, Twitter, WhatsApp, and Clubhouse. I may have missed a couple, but that’s about it.

If you want to build a social network, make sure you can show us you have experience in the space and are uniquely qualified to do so.

4. Games ⚠️

Building a successful game with very little funding could be even harder than building a social network. There’s so many things that go into a good game—a game engine, artists, 3d modelers, game programmers, writers, character designers, game designers and experts in game mechanics, music and sound designers, menu designers, etc. And you want to add blockchain into the mix as well? If you’re building a game, you need to be able to show us that you have experience, access to the talent, and the ability to execute on it. Your team needs to be able to fill all of these roles with a high level of skill.

5. Ideas that don’t need a blockchain

Not all ideas need to be built on a blockchain. In fact, many apps and services will end up being worse for their customers and less competitive in the market when built on a blockchain instead of a centralized service. We recommend you go through this checklist to see if your idea is a good use case for blockchain.

6. Tokens that don’t make sense as a utility or don’t have people willing to buy them for something

Tokens DO NOT give you the ability to give free money to people to incentivize whatever behavior you want. The token’s value needs to come from somewhere, meaning people need to be willing to buy it for some reason. We need to be able to see where your token gets its value from in order to invest in your company.

If you thought this post was valuable, please share it with your friends who are building or thinking of building a Web 3.0 or crypto startup.

We’d be honored to have you and anyone you believe in apply for the next cohort of Stacks Accelerator. Applications will open in a few months.

Managing Partner at Stacks Accelerator