Last year, First Round Capital made an announcement that I thought was pure genius: FRC was the first venture fund to offer an exchange fund for entrepreneurs. Portfolio company founders were given the option to trade a small piece of stock in their personal venture in exchange for a piece of the action of the larger pool of all FRC companies that choose to participate. This is a great way for founders to help hedge personal risk, and it probably encourages more support/camaraderie across the portfolio. If I was an entrepreneur actively seeking a venture round, you can be sure I would go talk to First Round.
I believe this same approach can and should be applied to incubator programs.
I like the model at the incubator level because it provides a small hedge on what is perhaps an even riskier endeavor that raising a VC round (working for peanuts for three months with no guarantee of even an angel round). In fact, the exchange fund model has been used successfully by founders at later stage companies for years.
If you were participating in TechStars, or Y Combinator would you take advantage of such an offering?
