Tan Kabra, a Babson student and serial entrepreneur in Boston, has spent ample time in the startup trenches and has seen some stuff. So when Kabra kept encountering angel funding gone awry, he decided to do something about it - namely, he founded LaunchByte.
“We’re both an incubator and micro-fund at the same time - essentially a reverse angel fund,” Kabra told me.
Intriguing.
From his personal experience, Kabra repeatedly came across ventures that had successfully raised funding and were trying to make their money stretch the furthest by outsourcing portions of the businesses, such as product development and marketing. Over time, these startups would run out of money with little to show for it because of the subpar outsourced services they used.
“You’d have $10K left in the bank, a terrible product and no one using it,” Kabra explained. He added that, at that point, most entrepreneurs resort to raising more money, which is only giving away more of their company rather than solving the issue at hand.
Kabra wants to fix this problem by preventing it from happening in the first place. LaunchByte turns the concept of funding on its head. Rather than handing capital to ventures and crossing their fingers that it’s well spent, Kabra and his team are extending startups lines of credit for services provided by LaunchByte.
As a LaunchByte portfolio company, a startup has access to seasoned resources for help with platform development, UI/UX design, data analytics, financial modeling, marketing, public relations and legal affairs. Ventures also have access to LaunchByte’s Board of Advisors, former entrepreneurs with a net worth of $3 billion.
“They don’t have to pay for anything,” Kabra said. Instead, he explained, whenever a portfolio company closes a round of funding, LaunchByte will bill up the total amount the incubator has performed in services for the startup and divide that number by the valuation of funding raised in that round. This determines the equity stake LaunchByte will then have in the venture.
So far, LaunchByte has secured a high amount of equity stake in three portfolio companies, two of which are Rezzit21 and Wynk. As a result, the fund, which has been bootstrapping up until recently, managed to raise a $7.5 million micro-fund that will close this month. And there’ll be more where that comes from. According to Kabra, LaunchByte has already received promissory notes from other angels and VCs for when the fund secures more stake.
With that capital, LaunchByte plans to further invest in portfolio companies when they go to raise a round. Additionally, it will be hosting events throughout Boston.
For instance, there will be pitch contests, which will cost ventures $99 to enter, as to weed out companies who aren’t really serious. These pitch-offs will help LaunchByte work on its current objective of growing its portfolio of high-tech companies.
Image via LaunchByte.
Correction: This story first read that LaunchByte closed $7.5 million this week.
