Well-known Techstars accelerator group was announced a number of changes to its operations this week, including the termination of some of its city-based programs.
Criticism from former members of its decisions lit up social media channels arguing that the famous startup accelerator has lost focus on the very thing that has historically made it so successful: city-based businesses in areas that aren’t overwhelmed by other such programs. And a former Techstars CEO ( MD ) told TechCrunch that moving away from local fundraising for city-based accelerator programs was a mistake.
Its imminent closure His boulder and Seattle Accelerators comes after the team decided to press pause on the Austin-based programan event TechCrunch reported on in late 2023.
Given its extensive global footprint and long history of investing in early-stage startups, the changes to how Techstars operates will impact founders and local business ecosystems around the world.
The local connection
In the wake of Techstars’ decision to withdraw from certain markets, former CEO of Techstars Seattle Chris DeVore wrote an extensive note criticizing the group’s strategic choices, including concentrating fundraising efforts and building programs with financial sponsors.
The managing director of the organization Maëlle Gavet entered this discussion and participated publicly in a back and forth with him.
But others privately echoed at least some of DeVore’s sentiments to TechCrunch. A former managing director (MD) said that having local limited partner investors at Techstars meant more people in those cities had a stake in its local programs. When TechStars’ capital later came from a pooled pot, there was less incentive for locals to ensure their backyard startups succeeded.
DeVore made a similar argument in his post and said the choice to focus fundraising away from local cities also had implications for the talent TechStars could attract.
After it became “clear that many of the new programs and MDs were trying to raise their own, local funds,” he wrote, the result was an “eviscerat[ion of] the incentive system that had attracted high-quality CEOs to run programs and connected investors and mentors in each local market.”
In an interview with TechCrunch about the changes announced this week, Gavet said the local funding model came to an end because it no longer worked. In the last six months Techstars had tested the model “again in three markets to have local fundraising to see if it was going to take off again,” an experiment it says “confirmed that it’s not working like it used to. “
The same former MD also criticized Techstars’ working with corporate partners to fund programs, telling TechCrunch that customer churn rates were high.
The shift away from local funds and a greater focus on corporate dollars meant that city-based boosters and founders were less central to Techstars’ focus, the MD said. DeVore took a similar view, writing that Techstars has moved from a focus on “passionate commitment to founders and the entrepreneurial journey, to a system focused on generating cash from paying corporate customers.”
Again Gavet disagreed with such views when he spoke to TechCrunch, saying that enterprise programs “were a critical competitive advantage” for the organization and continue to be.
The future
An open question for Techstars is the state of its own fundraising. The company scored a big round in 2019and closed a $150 million fund in 2021. However, a 2023 Season SEC Filing for a second $150 million vehicle has not been reported since its original filing. Has progress been made on the new fund? Gavet would not say, though he implied that all was well. He told TechCrunch that he couldn’t “comment on the fundraising,” though he said he wished he could, in part to “set the record really straight.”
TechCrunch heard from a source with knowledge of the matter that the 2024 fund has raised some capital, but we couldn’t ascertain how much, or if it’s on track to reach its $150 million goal.
While corporate evolution is never a messy process, Techstars’ renewal and new path will be easy to control in time. Does the accelerator group back startups that grow quickly and either go public or sell for big bucks? And if so, more often or less than before?
And to be fair, its biggest competitor, Y Combinator has also renewed its operations in recent quarters, withdrawing from investments at the last stageand reducing the size of its cohort while returning to an in-person model. However, Techstars faces competition, not only from Y Combinator domestically, but also from other accelerator programs in the US and elsewhere around the world.
Gavet, at least, seems confident that the best days for Techstars are ahead of him.
“Last year, we made about 700 pre-seed investments. This year, we should make about 800 investments – growing both inside and outside the US. The pipeline looks strong,” he said.
