Earlier this week, accelerator group Techstars announced changes to its operations. But what was planned internally to be an exciting new chapter for the organization turned out to be something of a PR nightmare.
Techstars has faced 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 first reported in December.
For example, Zillow co-founder Spencer Rascoff told X that Techstars’ note about closing the Seattle program was a “brutal takedown’ of this city’s startup scene. Techstars Boulder alumna Liz Giorgi as well vented to X on how “amazed at how badly this was handled.”
TechCrunch spoke with the CEO of Techstars Maëlle Gavet and asked her about the developments in her organization and the opinions of the critics. This interview has been edited for brevity and clarity.
TechCrunch: Some say that the shift from local fundraising to more centralized models was not in the best interest of founders. What do you think about such reviews?
Maëlle Gavet: When Techstars was born 17 years ago, it started almost as a franchise – where we would go to a city and there would be a CEO who would raise a capital with the TS brand. But it would be a fairly isolated bubble that would exist.
This helped the company grow from the ground up. At a time when funds were mostly raised by local investors, it was a very original model, which worked extremely well at the time.
The franchise model has its limits in terms of returns. It is very volatile because it is very narrow. And, institutions usually don’t care. Because of this, it’s basically not the model that works anymore… we’ve seen it time and time again. Especially in the United States — all major cities now have an ecosystem. We realized over time that our strength was in terms of the infrastructure that we can provide to founders, and not only during the program, but also after — because of our scale.
In the last six months, we tried again in three markets to do local fundraising to see if it was going to take off again. But it confirmed that it doesn’t work like it used to, so we stopped doing this test.
So where does TS stand in terms of raising new capital?
I can’t comment on fundraising. Trust me, I wish I could. I’d love to set the record straight.
I can share that at a high level, we have two types of funds. All are pre-seeded. TSA 2021 is our macro or institutional fund and is our flagship and largest fund backed by institutional equity, endowment and multiple LPs that we are completing development this year. It’s a $150 million fund that’s also universal, with no industry focus. If anything, we try to have a very balanced, hyper-diversified portfolio from an industry perspective. So we predict very predictable returns and low volatility. In a given fund you get 800-900 positions in the fund across all sectors.
Then we have a solo LP fund. Advancing Cities Fund it’s just over $80 million. These are partner venture funds that focus on a specific ecosystem in which they are located. They have a fairly narrow investment strategy in terms of industry. Companies want specific relationships with startups to be able to access innovation for potential M&A or commercial partnerships in the future. It’s a different risk profile.
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 seems strong.
Some say the lack of local fundraising has created lower wages and more work for local MDs. How about that?
Not talking about compensation, but finding an MD was never really complicated given the comp package. We can’t comment on how ex-employees or MDs feel about the new compensation, but it seems to be very attractive to a whole new generation of MDs.
Some argue that having corporate partners makes the companies a client rather than a founder. What about this one;
This does not match the data we have. I am a little confused. While it may be an easy narrative, when you look at the applications and acceptance rates in the corporate program, they also perform highly. And highly sought after with 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.
In addition, we are quite selective about who we work with. I think sometimes there’s this idea that we’re going to accept anyone.
First and foremost, we are a pre-seed investor, the most active in the world. We live and die by the returns we provide on our LPs. There is zero incentive to compromise performance for a few quick bucks with affiliates. Plus, frankly, there’s a reputational risk.
What is the status of the DEI-focused Progressive Cities Fund?
To be clear, we gathered this from several high net worth individuals and it happened to be on JPMorgan’s wealth platform. It’s not JPMorgan money, it’s not a JPMorgan fund. We spent a lot of time raising money for this money. They served as placement agent for the fund. There seems to be some confusion there.
We’ve deployed two-thirds of this $80 million fund (which launched in May 2022) and it’s going well.
How do you respond to accusations that you lacked 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 programs in how many cities again? To be clear, we will be making more investments this year than ever before. So, in 2024 and we will be running 50 accelerator programs in more than 30 locations around the world.
Unfortunately, I can’t show you financials, but we have more partners and mentors than we’ve ever had.
How many core staff are still in the company? Have you had any layoffs and what happens to staff in cities where you no longer run programs?
We have just over 300 employees. Employees either run accelerator programs or work on ecosystem development planning, which generates transaction flow for accelerators.
We had a reorganization recently where a few people left. In markets where we stop running accelerator programs, we tried to reallocate people to other functions and other jobs in other markets.
Some of the backlash 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 needs to be physically present to engage in an ecosystem is strange. No one asks this of other investors. We’re seemingly the only company that adheres to this standard where we have to physically have a team and an accelerator in a city. For example, we invest extremely heavy in the United States in general. We are very active in the Midwest. But we don’t necessarily have to have a physical group everywhere.
We also have infrastructure staff that do fundraising, do marketing on a large scale, because we’re very active on social media. We are very active in a bunch of summits and events around the world. These are the people who build the technology infrastructure.
The one thing that is highly underestimated about Techstars is the fact that in order to manage a portfolio of over 4,000 companies and manage all the alumni, mentors, shareholders, investors, you need to build a pretty significant technology stack to support them. support all this. We have a hybrid model that is very unique to Techstars. We want founders to have that personal experience that’s very hands-on and intimate, but also benefit from the global infrastructure and everything we do. We are constantly trying to find the balance between hyperlocal and global.
Some say you focus on markets where you need less.
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 be more successful. When they are successful, we are successful and our LPs are successful. There is a very strong association in some people’s minds that the only way to grow 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 supporting more underrepresented founders than anyone else—women, people of color, over 50, from the Midwest.
We have 4,500 mentors worldwide who are actively involved.
And like it or not, there are ecosystems where it’s easier for founders to be successful. They can always return to whatever ecosystem they came from and we encourage them to do so. But we want them to have connections to Silicon Valley and Los Angeles and New York and London.
Also, just because we don’t run an accelerator class in a market doesn’t mean we don’t continue to invest in companies in that ecosystem or in local events. They are not exits from the market. I’d bet we will be supporting a really large number of founders from Texas and Washington state in 2024.
How were LPs decisions like Foundry Group and Silicon Valley Bank does it affect your operations/decisions at all?
It was more than LPs. They are also shareholders. And this part it’s much more important than the LP part, as they were very small LPs in our coffers in general. The Foundry has a representative on the board — Brad Feld — and I got an email from him about an hour ago. Nothing has changed in this regard.
SVB is more in a transition phase as they are still trying to figure out what to do with the business… We still have one representative on the board.
What are you most excited about when it comes to Techstars 2.0?
I am very excited to create a new curriculum that will be more effective. There’s a bunch of stuff we’re working on. But I am very excited to create like this “entrepreneurial masterclass”. We’ve basically accumulated so much knowledge over the last 17 years and when I look at our list of mentors, it’s incredible. Historically, unfortunately, a lot of it was siloed… We finally figured out a way where if you’re an entrepreneur, you can access all of our knowledge and our entire list of mentors.
