Earlier this week, accelerator group Techstars announced changes to its operations. But what was planned internally as an exciting new chapter for the organization ended up being something of a public relations nightmare.
Techstars found itself facing criticism for some of its decisions and execution after announcing it would close its Boulder and Seattle accelerators after recently closing its Austin-based programwhich TechCrunch was first to report in December.
For example, Zillow co-founder Spencer Rascoff said in X that Techstars’ memo about closing its Seattle program was a “brutal demolition” of that city’s startup scene. Techstars Boulder alum Liz Giorgi also ventilated in X about how ““I’m shocked at how poorly this was handled.”
TechCrunch sat down with the CEO of Techstars Maëlle Gavet and they asked him about what is happening in his organization and about the opinions of critics. This interview has been edited for brevity and clarity.
TechCrunch: Some say moving from local fundraising to more centralized models hasn’t been best for founders. What do you say in the face of such criticism?
Maëlle Gavet: When Techstars was born 17 years ago, it started almost as a franchise: we went to a city and there was a CEO raising a fund under the TS brand. But what would exist would be a fairly isolated bubble.
This helped the company grow from the beginning. At that time, funds were raised mainly from local investors, it was a very novel model, which worked very well at that time.
The franchise model has its limits from a return perspective. It is very volatile because it is very narrow. And institutions are usually not interested. So basically it’s no longer the model that works… we’ve seen it time and time again. Especially in the United States: all big cities now have an ecosystem. We realized that over time our power was in terms of the infrastructure we could provide to founders, and not just during the program, but afterward, because of our scale.
Over the past six months, we tried again in three markets to do a local fundraiser to see if it would take off again. But it confirmed that it doesn’t work as well as before, so we stopped doing that test.
So where is TS in terms of raising new funds?
I can’t comment on the fundraising. Believe me, I wish I could. I would love to set the record straight.
I can share that at a high level we have two types of funds. They are all pre-seed. TAS 2021 is our macro or institutional fund, and it is our flagship and largest fund that is backed by institutional investment funds, endowments and multiple LPs that we are finishing rolling out this year. It is a $150 million fund that is also universal and not focused in terms of industry. In any case, we are trying to have a very balanced and hyper-diversified portfolio in terms of industry. This is how we predict very predictable returns and low volatility. In a given fund, you get between 800 and 900 holdings in the fund across the board.
Then we have a solo LP fund. Advanced Cities Fund It’s a little over $80 million. These are corporate partner funds that focus on a specific ecosystem they are in. They have one fairly narrow investment strategy in terms of industry. Corporations want specific relationships with startups so they can access innovation for potential mergers and acquisitions or business partnerships in the future. It is a different risk profile.
Last year, we made around 700 pre-seed investments. This year, we should make about 800 investments, growing both inside and outside the United States. The project seems solid.
Some say the lack of local fundraising led to lower salaries and more work for local doctors. What would you say to that?
We don’t talk about compensation, but finding doctors has never really been difficult given the compensation package. We can’t comment on how former employees or CEOs feel about the new compensation, but it looks very attractive to a whole new generation of CEOs.
Some argue that having corporate partners turns corporations into customers rather than founders. What do you say to that?
That doesn’t match the data we have. I’m a little puzzled. While it may be an easy narrative to understand, when you look at the applications and acceptance rates into the corporate program, they are also high-performing. And highly sought after by partners like NASA, eBay and Ecolab that entrepreneurs really want to be a part of. As a former entrepreneur myself, when I was working in e-commerce, I would have loved to have access to eBay.
Additionally, we are quite selective about who we work with. I think sometimes there is this idea that we will accept anyone.
Above all, we are a pre-seed investor, the most active in the world. We live and die by the benefits we offer our LPs. There is no incentive to slow down performance for a few quick dollars with partners. Plus, frankly, there is a reputational risk.
What is the status of the DEI-focused Advancing Cities Fund?
To be clear, we posed this to a lot of high net worth people and it turned out to be on JPMorgan’s wealth platform. It is not JPMorgan money, nor a JPMorgan fund. We spent a lot of time fundraising for that money. They served as placement agents for the fund. There seems to be some confusion there.
We’ve deployed two-thirds of that $80 million fund (which launched in May 2022) and it’s going well.
What do you say to the accusations that you have had a lack of focus as an organization?
I haven’t heard that. From the outside, we’re such a non-traditional investment firm that it’s probably very disconcerting to a lot of people. I guess a lot of people who put us in the VC box look at us and say, wait, so you have shows in how many cities again? To be clear, we will be making more investments this year than ever before. So in 2024 we will run 50 accelerator programs in more than 30 locations around the world.
Unfortunately, I can’t show you the financials, but we have more partners and mentors than ever.
How many core employees are still in the company? Have you had layoffs and what happens to staff in cities where programs are no longer operating?
We have a little more than 300 employees. Employees run accelerator programs or work on ecosystem development programming, generating transaction flow for accelerators.
We had a reorganization recently in which some people were laid off. In markets where we stopped running acceleration programs, He tried to reassign people to other functions and other jobs in other markets.
Part of the backlash that’s happening this week seems to come from people not understanding or reacting by saying, “If you’re not in a city anymore, that means you don’t care.” The idea that Techstars need to be physically present to participate in an ecosystem is strange. Nobody asks that of other investors. Apparently we are the only company that meets that standard where we have to physically have a team and an accelerator in a city. For example, we invest extremely strongly in the United States across the board. We are very active in the Midwest. But we don’t necessarily need to have physical equipment everywhere.
We also have infrastructure people who raise funds and do marketing at scale, because we are very active on social media. We are very active in a number of summits and events around the world. These are the people who build the technological infrastructure.
The one thing that is highly underrated about Techstars is the fact that to manage a portfolio of over 4,000 companies and manage all the students, mentors, shareholders and investors, you need to build a pretty substantial tech stack to support all of that. We have a hybrid model that is exclusive to Techstars. We want founders to have that in-person experience that’s very hands-on and intimate, but also benefit from the global infrastructure and everything we’re doing. We are constantly trying to find the balance between the hyperlocal and the global.
Some say you’re focusing on markets where you’re least needed.
We are investors and often end up with six to 10% ownership in companies. Our job is to find great, unstoppable founders and help them become more successful. When they are successful, we are successful and our LPs are too. In some people’s minds there is a very strong association that the only way to develop an ecosystem is to be physically in the market with an accelerator. What we’re saying is that we’re relentless in finding founders everywhere and backing more underrepresented founders than anyone else: women, people of color, over 50, from the Midwest.
We have 4,500 mentors around the world who actively participate.
And whether we like it or not, there are ecosystems where it’s actually easier for founders to succeed. They can always return to the ecosystem from which they came and we encourage them to do so. But we want them to have connections to Silicon Valley, Los Angeles, New York and London.
Additionally, just because we’re not running some kind of accelerator in a market doesn’t mean we’re not still investing in companies in that ecosystem or in local events. They are not market exits. I bet we’ll be support a really large number of founders from Texas and Washington state in 2024.
How did LP’s decisions come about like Foundry group and Silicon Valley Bank Does it affect your operations/decisions at all?
They were more than LPs. They are also shareholders. and that piece is much more important than the LP, since they were generally quite small LPs in our funds. Foundry has a board representative, Brad Feld, and I received an email from him about an hour ago. Nothing has changed from that perspective.
The SVB is rather in a transition phase, as they are still trying to decide what to do with the business… We still have a representative on the board of directors.
What are you most excited about Techstars 2.0?
I am very excited to create a new curriculum to be more effective. There are a lot of things we are working on. But what I’m most excited about is creating an “entrepreneur masterclass” like this. Basically, we have accumulated a lot of knowledge over the last 17 years and when I look at our list of mentors, it is incredible. Historically, unfortunately, a lot of that was siled… We finally figured out a way that, if you’re an entrepreneur, you can have access to all of our knowledge and our entire list of mentors.
