In September, about a dozen founders arrived in Miami to participate in AI Forge, a new startup incubator. These founders were promised $12,000 in cash up front, along with what the company said was $255,000 worth of perks like office space, mentoring, and networking opportunities. In return, the founders would give AI Forge 9% equity in their nascent companies.
Founders would spend 12 weeks working on artificial-intelligence-based products — interactive avatars designed to teach people new languages, say, or AI-powered health coaches. They'd bring their prototypes to a multiday confab with prospective investors.
One founder said that before he joined, Kevin Jackson, who until recently was AI Forge's chairman, told him the program would give him an 85% chance of a pre-seed investment.
Several of the founders moved cross-country for the program, and one relocated from Italy. Their contracts said the $12,000 was supposed to be wired to each of them after the program's first day. Six Miami founders — all of whom asked to remain anonymous for fear of professional repercussions but whose identities are known to Business Insider — said that by week three, they still hadn't received the full amount. (The remaining founders did not respond to requests for comment.)
The topic began to set off alarm bells among the tight-knit group. "We actually became a union," one founder joked. "We became so close to each other at a very fast pace, and we were able to start identifying red flags."
The Miami founders used Slack to voice their concerns. They periodically sent messages to Jackson describing their stress over things like paying rent. "It's beyond unprofessional & insulting to treat us this way," one founder wrote in early November, tagging Jackson. "If you didn't get the money, tell us. I have literally NEVER been in an environment where it's this hard to pin down when money is coming."
Three founders told BI that, on separate occasions, they individually confronted AI Forge executives in the office to ask for their money. (Jackson, who resigned as chairman in July, said this was "not true" but declined to elaborate.)
Even as Jackson was candid about money struggles, AI Forge seemed willing to spend on extras. During the program's first week, the company invited the founders on a sunset boat trip across Miami Bay. In subsequent weeks, founders were treated to social activities like dragon-boat racing. (Jackson told BI that these social events took place "every couple of weeks" and that AI Forge executives paid for them out of pocket.)
Over Slack, Jackson repeatedly claimed that the money was on its way, at one point referencing a $1.4 million investment from Turkey, another time assuring founders of a $220,000 investment from an unspecified party in Los Angeles. On November 16, Jackson told the founders that AI Forge had run into financial trouble because it had been counting on a $760,000 investment that had disappeared. He said the incubator had recently been offered $25 million. (According to PitchBook, as of June, AI Forge had raised $800,000 in total funding. Jackson said the PitchBook number was "not accurate" but declined to comment further on the company's fundraising.)
AI Forge's Miami program ended in November, but the Slacks kept coming. In late December, Jackson sent yet another lengthy explanation for the delayed payments. In response, one founder wrote: "On what planet do you think that you can get away with this? A man is only as good as his word. There is nothing more despicable on this planet than a liar."
At the end of January, AI Forge emailed the Miami founders to say they'd get their full $12,000 if they transferred their 9% in equity to an unnamed investor. The six founders BI spoke with said they were reluctant to take the deal because AI Forge hadn't said to whom their equity would go. Asked about AI Forge's offer, a European venture capitalist who has invested in AI companies said that transferring equity to an unknown investor would be an unusual move for an accelerator. However, he suggested the global macroeconomic slump at the time, which made it harder for startups and VC funds to raise money, prompted some accelerators to make rash decisions — such as running programs while fundraising. (Jackson said that if any of the founders had wanted to pursue the deal, they would have been introduced to the investor.)
The six Miami founders said they did not take the deal and didn't believe anyone else had either. They said in February that they'd been paid partial amounts ranging from $5,000 to $11,000. In June, four of the six said they still hadn't gotten their full $12,000. (The two other founders didn't respond to a request for an update.)
In some cases, AI Forge's late payments had major financial consequences. One of the Miami founders said he struggled to keep up with the mortgage payments for his house in Pennsylvania while paying for his Miami rental. Another said that during the program he and his partner "would walk to the cheapest grocery store and get ramen noodles and half a gallon of milk to last us a week." The founder borrowed money from his family to sustain himself during the program, and in January, as his financial difficulties mounted, he moved in with relatives.
More Miami letdowns
Other aspects of the Miami program were also a letdown to some founders. Two said the UX designers they were paired with turned in designs for their product late or didn't finish them at all. AI Forge had advertised its demo day as a chance to pitch as many as 200 prospective investors, but in the end, only a few dozen people showed up. One founder described the atmosphere as "flat" and "disappointing," and another said they weren't aware of any investment that resulted from the event.
Jackson said that none of the Miami founders had complained about developers turning work in late. "Wish they'd have brought it up at the time," he wrote in an email to BI.
He acknowledged in an April interview that the promised payments hadn't arrived on time or in full. But he later said in an email that AI Forge made it "clear that the $12,000 is a stipend to help with living/business expenses during the program," adding that it wasn't intended to and couldn't pay for founders' "lifestyle." Founders who were especially frustrated, he said, were "released from any obligation" and given back their equity if they had already transferred it.
Jackson said it might have been a good idea to pump the brakes on the Miami program instead of forging ahead without crucial funding. But he argued that "the founders probably expected too much." AI Forge agreed to take over 9% of their businesses, "but that means they've got the other 91%," he said. "I think they thought that we were going to do everything."
London growing pains
As it launched its Miami program, AI Forge was also kicking off a program in London, where its founder, a serial entrepreneur named Craig Massey, is based. (Massey did not respond to an interview request.)
Founders participating in AI Forge's first London program, which, like the Miami program, ran from September to November, were promised $12,600 in cash up front. But one London founder and one AI Forge staffer said founders were also left waiting for their money for weeks. Meanwhile, they added, the founders were encouraged to attend social gatherings and taken to bars and restaurants at AI Forge's expense.
In March, Jackson emailed the London founders to acknowledge that AI Forge was still struggling to pay them and blamed the tardiness on "terrible, torrid investor torment." He wrote that the company's main backer — a "huge Indian family office" that had been "super responsive" — had fallen through. After bankrolling the company out of pocket and "kissing a lot of frogs," Jackson wrote, executives "now feel we have finally nailed all the new tranches of funds that should cascade into the business."
"Dear god, this has been an unmitigated world of pain," he wrote, "but welcome to the world of startups."
Jackson promised that AI Forge's debts would be paid off by the end of April, when he hoped founders would join him for an alumni event. "Guys – please - come on – life is too short to fall out over a small amount of money," he wrote.
Months earlier, in January, AI Forge launched its second London program, this time for about 30 founders who would be paid $7,600 each in three installments. They, too, were promised things like office space and networking opportunities — this time in exchange for 6% equity.
Two founders from this second group said they were still waiting for a finalized contract several weeks into the program — an experience one described as "very, very strange." ("Which founders?" Jackson wrote in an email. "None that have talked to us.")
Three founders from the second London program said they eventually dropped out because they were disappointed in AI Forge's lack of organization and the quality of the incubator's professional resources.
One founder from the second London group, Heradio Luces, said he received his $7,600 in cash by the end of March, when the program concluded. He added that he had a good experience with AI Forge that helped bring about conversations with multiple investors, including two with whom he's in fundraising negotiations.
Other founders had a harder time getting their money. In April, Jackson told BI that everyone from the second London program would be paid in full by the end of the month. But in May, AI Forge was still following up with participants via email, promising to pay the rest of what it owed them as soon as possible. One founder from the second London program said AI Forge finally paid her in full in early June.
Two Miami founders said they were considering taking legal action against AI Forge over their late and missing payments. One UK-based contractor did take AI Forge to small-claims court, saying they were still owed $10,200 months after completing work for the London cohort. The contractor was paid in full by June 4. (Jackson said the dispute was over "quality of work.")
AI Forge discontinued its Miami program after the first run, but it launched its third London program in May. "I think everyone can admit we made mistakes in cohort one, but we've rectified those," Jackson said. "We've improved our product. We've improved the way we deliver that product. We've improved the events that create the investor."
Jackson argued that "anyone who makes waves — anyone who raises their head above the parapet, which we've done to try and help founders with our knowledge and experience" — becomes a target.
"We're a startup," he added. "It doesn't matter what your startup is; you're going to make mistakes."
