Cuts to Techstars The staff and its decision to close some accelerators came after it missed its 2023 revenue targets, according to documents detailing preliminary 2023 results seen by TechCrunch.
Techstars also lost millions of dollars more by the end of the year (in adjusted EBITA) than it expected it would, additional documents discussing the mid-year performance described. And the company’s costs were too high compared to its revenue, the documents said.
Techstars recently closed its Boulder and Seattle accelerators after discontinuing its Austin-based program. It laid off about 7% of its staff and, last week, announced an overhaul of its operations so large it called changes “Techstars 2.0.” While the documents describe many aspects of Techstars’ financial performance for 2023, they were based on preliminary January data and final year-end numbers may vary. Techstars declined to comment.
The financial problems experienced by Techstars in 2023 are not unique. Many members of the startup-venture landscape, including Techstars competitors, have been forced to adjust to top results that failed to meet internal expectations after rising interest rates upset the financial landscape.
Some funds are making more drastic choices like closing on internal matters; others close on a more scheduled schedule. Even Y Combinator has somewhat returned to its roots as an early-stage investor, moving away from late-stage deal-making.
Therefore, the renewal of Techstars equipment in this context is not surprising. But the numbers give us rare insight into the economics of running an accelerator group the size of Techstars.
The financial reality of running a huge accelerator
This internal data also makes clear that Techstars’ expenses outstripped its ability to generate revenue in 2023, helping to explain why the company worked to reduce its geographic footprint and reduce its overall headcount.
It had an average of 54 active accelerator programs during the year, resulting in 682 qualified portfolio companies and total revenue for 2023 of $73.1 million, according to the filings.
Even so, a separate document detailing the company’s full-year budget and a mid-year forecast against those targets shows the company’s 2023 revenue was well below expectations. The company originally budgeted for $94.8 million in revenue. In June 2023 Techstars lowered its forecast for the year to $88.2 million. Its year-end number — a $15 million shortfall from its already lowered expectations — explains why the company is cutting costs.
In terms of expenses, Techstars ended the year with less expenses than it expected at the beginning of 2023 or than it had projected in the middle of the year. It initially budgeted program costs at $39.9 million and operating costs at $63.8 million. In June Techstars thought it would end the year spending $38.1 million and $60.5 million, respectively. However, year-end figures put program spending at just $34.3 million and operating expenses at $53.5 million.
The cost underestimation may be due to fewer accelerators operating than expected. Techstars’ 2023 budget targeted an average of 68 “active accelerator programs,” but fell to 61 in its mid-term forecast. The final number came to four according to the revised estimate.
With lower than expected revenue in 2023, but also more modest costs, how profitable was Techstars last year? The company already expected to close the year with a loss, but the year ended much deeper than it had estimated. It had budgeted for an adjusted EBITDA loss of $600,000 in early 2023, at mid-year the company expected its adjusted earnings to close the year at negative $1.9 million. The final number was a negative $7.2 million.
The good news was that Techstars had plenty of cash in 2023 to deal with these issues, and the cash balance ending 2023 was actually much better than originally expected. It had budgeted for a year-end cash balance of $43.5 million and by mid-year had projected $50.7 million. Its actual result, a year-end balance of $48.7 million, means the company started the year with more cash than it had originally planned, even if the final tally was below its mid-year expectations.
Is it a lot of cash?
For Techstars, that’s a lot of cash. Several sources who spoke to TechCrunch expressed some concern that Techstars was short on cash, saying it could be short of capital by the end of 2024. But those documents reveal that the company closed last year with about $50 million in cash for operation of the budget. The capital it uses to invest in start-ups and the capital raised by its investment vehicles is not counted in its own operating cash.
However, our sources also suggested that the funds that Techstars used to support its 2024-era accelerator programs — its Techstars 1.0, if you will — will complete the investment round this year. This is not a concern. Venture capital is supposed to be used to invest in startups. And its parent company is well capitalized, based on our analysis of these documents.
TechCrunch has yet to confirm whether the 2023 staff and program cuts will be enough, or whether more city accelerators or other programs will close. It recently laid off about 20 people, or 7%, sources confirmed to TechCrunch.
“We had a reorganization recently that took some people off. In markets where we stop running accelerator programs, we’ve tried to reallocate people to other functions and other jobs in other markets,” Techstars CEO Maëlle Gavet told TechCrunch last week. The company currently has just over 300 employees, he explained, split into two camps: those working on accelerator/ecosystem programs and those working on infrastructure programs.
However, a recent all-hands meeting seen by TechCrunch revealed that CEOs were still trying to cut operating expenses. In addition to a 7% staff reduction, those reductions will help the company save more than $8 million this year, sources tell TechCrunch. If the company cuts even more programs, the company’s cash burn could become modest even without revenue growth.
Techstars is scaling back and rebuilding, but year-end figures don’t paint a picture of a company in dire straits. Instead, it appears that Techstars grew too big for its revenue base in the post-zero-interest-rate world of politics, and cost-cutting was a logical step. Whether Techstars is making the right strategic choices in what it’s challenging — as some critics and former employees have questioned — remains to be seen. But in purely fiscal terms, the options are easy to flatter.
Current and former Techstar employees can contact Dominic-Madori Davis via email at dominic.davis@techcrunch.com or Signal, a secure encrypted messaging application, at +1 646.831.7565. or contact Mary Ann Azevedo via email at maryann@techcrunch.com or via Signal at +1 408.204.3036.
