Well-known accelerator group Techstars announced a slew of changes to its operations this week, including the shuttering of some of its city-based programs.
Social media channels were lit with criticism from former members, who argued that the famed startup accelerator has lost focus on the very thing that historically made it so successful: city-based operations in areas not swarming with other such programs. And one former Techstars managing director (MD) told TechCrunch that the move away from local fundraising for city-based accelerator programs was an error.
The upcoming closure of its Boulder and Seattle accelerators comes after the group decided to hit pause on its Austin-based program, an event that TechCrunch reported on in late 2023.
Given its extensive global footprint and lengthy history of investing in early-stage startups, changes to how Techstars operates will affect founders and local venture ecosystems around the world.
The local connection
In the wake of Techstars’ decision to pull back from certain markets, former Techstars Seattle managing director Chris DeVore penned a lengthy note criticizing the group’s strategic choices, including centralizing its fundraising efforts, and building programs with corporate sponsors as financial anchors.
The org’s CEO Maëlle Gavet hopped into that discussion and publicly engaged in a back-and-forth with him.
But others privately echoed at least some of DeVore’s sentiments to TechCrunch. One former MD said that having local limited partner investors in Techstars meant that more people in those cities had a stake in its local programs. When TechStars capital later came from a centralized pot, there was less incentive for locals to ensure that startups in their backyard succeeded.
DeVore made a similar argument in his post, and said the choice to centralize fundraising away from local cities also had repercussions for the talent TechStars could attract.
After it became “clear that many of the new programs and MDs were struggling to raise their own, local funds,” he wrote, the result was an “eviscerat[ion of] the incentive system that had attracted high quality Managing Directors to run programs, and had bound together investors and mentors in each local market.”
In an interview with TechCrunch about the changes announced this week, Gavet said that the local funding model had reached its terminus because it was no longer working. In the last half-year Techstars had tried the model “again in three markets to have local fundraising to see if it was going to take off again,” an experiment that she says “confirmed that it’s not working as well as it used to.”
The same former MD also criticized Techstars work with corporate partners to fund programs, telling TechCrunch that client churn rates were high.
The shift away from local capital and more focus on corporate dollars meant that city-based boosters and founders were less central to Techstars’ focus, the MD said. DeVore had a similar take, writing that Techstars went from a focus of “passionate commitment to founders and the entrepreneurial journey, to a system focused on generating cash from paying corporate customers.”
Again Gavet disagreed with such opinions when speaking with TechCrunch, saying that the corporate programs have “been a critical competitive advantage” for the organization and continue to be so.
The future
One open question for Techstars is the state of its own fundraising. The company raised a large round in 2019, and closed a $150 million fund in 2021. However, a 2023-era SEC filing for a second $150 million vehicle has not been updated since its initial filing. Has there been progress on the new fund? Gavet wouldn’t say, though implied all was well. She told TechCrunch that she could not “comment about fundraising,” though she said that she wished that she could, in part to “to set the record really straight.”
TechCrunch heard from a source with knowledge of the matter that the 2024 fund has raised some capital, however we were not able to ascertain how much, nor if it’s tracking to reach its $150 million target.
While corporate evolution is never a non-messy process, the Techstars revamp and new path will be easy to vet in time. Does the accelerator group back startups that grow quickly, and either go public or sell for large sums? And if so, more frequently, or less so than before?
And to be fair, its largest competitor, Y Combinator also retooled its operations in recent quarters, pulling back from late-stage investing, and reducing its cohort size while moving back towards an in-person model. Still, Techstars faces competition, not just from Y Combinator domestically, but from other accelerator programs in the US and elsewhere around the world.
Gavet, at least, seems confident that the best days for Techstars are in front of it.
“Last year, we did about 700 pre-seed investments. This year, we should be making about 800 investments – growing both inside and outside of the U.S. The pipeline looks strong,” she said.
Comment