The Evolution of Techstars

This is The Startup Breakdown, the newsletter where we learn, laugh, and love startups. By joining this growing community of hundreds of future startup aficionados (think i spelled that right?), you're getting a beachside view of the ocean that is the startup and VC scene. This ain’t your grandpa’s newsletter, so prepare yourself for an inbox full of 4/20 jokes and Succession references.  

Happy Tuesday, folks.

Had the chance to hear Greg Isenberg talk about community last week, and it just made me appreciate how great you guys really are. So here I am, on my hands and knees, begging you to please reply to this email and tell me a bit about yourself. I want to know each and every one of you.

I’ve reached out to a few of you personally and have appreciated the responses. I’ve made various tweaks, from content strategy to images to even cadence all based on your personal feedback, and it’s been incredibly helpful.

I want to do more of this.

Techstars faces financial issues, friction with JP Morgan

When a startup accelerator makes headlines, they hope it’s because an alum raised a massive follow-up round or maybe exited with some sky-high valuation with a product developed with the tutelage of the program’s mentors.

That’s not what’s happening for Techstars.

The organization has raised $26.6 billion and incubated more than 4,000 companies. It’s arguably the second-most prominent accelerator behind just Y Combinator.

Lat month, they announced the shuttering of two of its programs, those in Seattle and Boulder, and temporary suspension of another in Austin. In the process, they laid off 7% of their workforce as they refocused and transitioned to “Techstars 2.0.”

Leaked documents showed that in reality, they netted a negative $7 million in profit, $15 million in revenue, in 2023. That’s more than 15% of the company’s $50 million in operational cash.

Missing revenue expectations isn’t abnormal, particularly for early stage investors in the current environment. However, Techstars’ downsizing has been much messier.

When announcing they was opting for drier weather and lower altitudes, they revealed plans to double down on the cities with the highest concentrations of startup activity, namely SF, NYC, and Boston.

Many directors are questioning the drift away from the very localized model which they built their name upon. 

Another knock against the accelerator hit as it was revealed that its $80 million J.P. Morgan fund to support underrepresented founders may not be renewed.

The partnership is not directly with the bank but rather raised from individual investors in the bank’s network. The decision to end the partnership, though, stems from bank executives not being thrilled with early results, including work conditions and cohort programming decisions.

The partners also disagreed on the definitions of underrepresented founders, and the bank aimed for more stringent definitions and higher ratios in their supported cohorts.

The pay structure of program MDs didn’t align with these goals as they were compensated via carry, meaning they were motivated to find the most promising companies regardless of socioeconomic background, while the bank wanted incentivization based on hitting diversity goals. This commitment to social initiatives vs. financial optimization has been a point of contention for many DEI-driven funds.

To be clear, Techstars isn’t in trouble. Firms across the country are facing challenges, and many won’t weather the storm. Techstars’ name and track record are enough to keep the oars rowing.

As for leadership questions, even YC has been harmed with President Garry Tan’s vocal criticism of the local government (and drunken rap lyrics telling officials to die…) has reportedly been a distraction.

Techstars’ new business plan is likely to put them back on firm financial footing. Plus, they’re still exploring and expanding. They’re running their first program in Tokyo this summer and partnered with USC.

Main takeaway? Consider this your weekly warning that funds are still hurting for cash, and this retraction in venture is showing in various places, whether geographic closure or fractured relationships. Nobody knows when things will turn around for the better, but it will still be at least a few months to be a “good” time to raise.

There’s nothing that you can control, though.

What can you do?

Talk to customers.

Build shit people want.

And if you’re wondering whether you’re ready to ship, you should have been charging as of yesterday.

Techstars is undergoing significant changes, including closing two programs and laying off 7% of its workforce, as it shifts focus to major cities and confronts financial challenges. Amidst a reevaluation of their strategies, including diversity initiatives and financial performance, Techstars aims to adapt and strengthen its position in the startup ecosystem.

Have other feedback? Just want to chat?

Reply directly to this email and let me know!

Cheers to another day,

Trey