Featured Article

Techstars’ $80M partnership with J.P. Morgan is on the rocks, employees say

Insiders say the relationship began to sour almost immediately

Comment

Techstars Tension between JPM and Techstars
Image Credits: Bryce Durbin

During a Zoom meeting with her senior leaders last summer, Techstars CEO Maëlle Gavet sat at a table, an open notebook in front of her, a laptop to her side, her arms crossed. An attendee had just asked her about the progress of the organization’s $80 million Advancing Cities Fund, which was raised through J.P. Morgan’s Private Bank Platform.

In the calm demeanor of someone trying to watch her words, she answered that Advancing Cities was not going well. Multiple incidents across multiple programs had caused J.P. Morgan to freak out, according to sources familiar with the conversation, including evidence seen by TechCrunch.

Techstars had begun assembling cohorts and deploying out of the fund since 2022 with a goal to back more than 400 companies founded by underrepresented founders. It led to the creation of Techstars programs in at least eight cities, including Oakland, Atlanta, and Miami.

But by August 2023, when this meeting took place, J.P. Morgan’s team had become “disengaged,” a characterization that seven people associated with the program made to TechCrunch independently. Gavet admitted in the meeting that the fractured relationship was not entirely the bank’s fault: Missteps by Techstars had caused much of the tension.

Techstars has currently invested about two-thirds of the fund, Gavet recently told TechCrunch, adding that the bank is “an amazing partner” and “very active in our program.”

However, J.P. Morgan has yet to tell Techstars whether it will renew the partnership for an Advancing Cities 2 Fund once the initial contract expires in December, sources say. That decision was supposed to be handed down last summer so that Techstars could start fundraising and begin deploying capital in 2025.

This means the fate of the Advancing Cities programs — and some of the around 20 people who work at Techstars in this program — is up in the air.

Both J.P. Morgan and Techstars declined to comment on the future of the partnership. But Techstars spokesperson Matthew Grossman emphasized that the current fund is still active and has invested in 263 companies with plans to back another 200. “This year, we will continue to deploy the fund until the fund is deployed. And then like every other venture fund, after that fund is deployed, we’ll see what happens next,” he told TechCrunch.

A “long series of incidents”

Techstars is undergoing an operational restructuring, including cutting programs worldwide, laying off staff, and shuttering accelerators in cities like Oslo, Austin, and its former mothership, Boulder, Colorado. It missed 2023 revenue projections and logged $7 million in losses, according to preliminary numbers seen by TechCrunch.

At the same time, Techstars is known for supporting founders of color and giving them opportunities that would otherwise be hard to come by. Funding for founders of color is so chronically dismal that access to capital can be life-changing.

From the outside, the uncertainty of this program’s future may look like J.P. Morgan is simply retreating on its diversity promises, following the path of many corporate institutions that walked back commitments made after the murder of George Floyd. However, several current and former Techstars employees say that Techstars has struggled to live up to the robust expectations that J.P. Morgan had when it partnered with the firm for this fund.

DUBLIN, IRELAND - NOVEMBER 05: In this handout image supplied by Sportsfile, Maelle Gavet, CEO, OZON, discusses The Tech Revolution Outside the Valley on the centre stage during Day 2 of the 2014 Web Summit in the RDS, November 5, 2014 in Dublin, Ireland. (Photo by Stephen McCarthy / SPORTSFILE via Getty Images)
Gavet became CEO of Techstars in 2021. Image Credits: Handout / Handout

A Techstars presentation from another meeting that also took place in August noted a “long series of incidents” since Techstars started deploying its Advancing Cities Fund in 2022. These involved multiple complaints about directors at multiple programs, as well as issues with events, including behavior, programming, naming, and sponsors. The bank grew so concerned about an invitation extended to a politician at one DemoDay that it withdrew its branding, sources said.

J.P. Morgan also flagged four instances of “inopportune” wording around Techstars’ diversity goals. For instance, Gavet and a managing director wanted to call the Oakland program Techstars Silicon Valley despite J.P. Morgan’s intention to emphasize the accelerator’s focus on and presence in a prominent Black city. In the end, the accelerator program was named after Oakland.

At least three sources said Techstars received complaints from founders about one managing director of an Advancing Cities program, some allegations of which described hostile working environments. TechCrunch was unable to confirm specific allegations, though we’ve learned that this managing director has since left that program and now heads another Advancing Cities program. Techstars and J.P. Morgan declined to comment on the incidents.

Conflicting definitions of diversity

One of the biggest issues, according to sources and documentation seen by TechCrunch, was that J.P. Morgan wanted at least 50%, but ideally 70%, of each city cohort’s investment to be into startups led by underrepresented founders that matched a specific definition of a diverse founder.

Data seen by TechCrunch, however, showed that diversity in the Advancing Cities programs started steadily declining below the threshold last year. At one point last year, at least one program did not hit the 50% benchmark at all, although others compensated by hitting nearly 70%.

For $80 million, sources said, J.P. Morgan simply expected better results.

J.P. Morgan had presented Techstars with a narrow definition of who it considered to be a diverse founder, too: someone of Black, Latino, Indigenous, or Pacific Islander descent. Internally, however, Techstars used a much broader definition of the term, incorporating gender, age, and veteran, disability, and immigrant status. The result is that managing directors have the option to add two different DEI tags to describe a company: J.P. Morgan diverse and/or Techstars diverse, according to documents seen by TechCrunch.

Five people close to the matter, some of whom are no longer at the company, said there has always been a focus on increasing gender diversity within Techstars programs, but race would fall by the wayside. Some managing directors struggled to source founders who would be considered diverse under J.P. Morgan’s standards. The different tags and broad definition of diversity helped Techstars spin some numbers when it comes to publicly stating the diversity breakdown of their programs, said three sources with knowledge of the matter.

Techstars denied this characterization. “We measure different datasets for different purposes,” Grossman told TechCrunch. “We believe in investing in underrepresented founders. And when we say underrepresented, we mean everybody who is not traditionally under the gaze of traditional venture capital.”

Boston, MA - September 1: Participants on stage during the opening of Techstars Demo Day at the Back Bay Events Center in Boston on September 1, 2015. (Photo by John Blanding/The Boston Globe via Getty Images)
Techstars has been undergoing an operational restructuring as it attempts to cut costs. Image Credits: John Blanding/The Boston Globe / Getty Images

Grossman emphasized that, as of late last year, 63.5% of the Advancing Cities CEOs accepted into the program, who agreed to self-report their race, are Black, Latino, Indigenous, or Pacific Islander. He added that every cohort besides one has hit the 50% objective. This report, made public late last year, covered only the first half of the fund’s investment and initial cohort acceptance. It did not specify the diversity percentage of graduates.

Pay tied to returns

Another source of friction was that J.P. Morgan wanted the focus of the program to lean toward a high percentage of diverse founders, but, like all investment firms, Techstars rewards managing directors primarily based on returns.

That means managing directors are trained to search for startups that they believed were likely to graduate from the program and land follow-on funding from other VCs. That provided another layer, making some managing directors prioritize program acceptance on metrics other than founder diversity.

“We’ve always said that we are looking for the best founders,” explained Monica Wheat, managing director of the Detroit Advancing Cities program. “We’ve always also said that we are doing that but targeting underrepresented founders. And we do that specifically through all the MDs’ respective networks and respective experience as investors. We’re investors first and foremost.”

Techstars said that managing directors’ compensation includes carried interest, aka a percentage of the fund’s profits, and a cash bonus. To align rewards with J.P. Morgan’s mission, some percentage of the bonus for managing directors in the Advancing Cities is tied to how many of their startups fit the diversity criteria.

In addition to the friction over acceptance priorities, four sources said J.P. Morgan was also frustrated with what it saw as high staff turnover in the leadership suite. Since last year, Techstars’ chief revenue officer, chief technology officer, chief financial officer, chief accelerator investment officer, chief capital formation officer, and chief legal officer have all departed the C-suite. This is in addition to the 10-plus managing directors who have left for various reasons and other staff turnover.

Back in that August meeting with Gavet, once she confessed to the shaky status of the program, attendees peppered her with questions, mainly asking who would replace J.P. Morgan if the bank decided to end the partnership. Gavet explained that replacing J.P. Morgan as a fundraising partner would be difficult, if not impossible, because it is one of the few banks with a fundraising platform that allows qualified investors to back early-stage startups. Raising a fund on their own would be rough, given the overall challenging fundraising environment in 2024, according to sources and records seen by TechCrunch.

She added that Techstars’ own accelerator fund could not take over Advancing Cities’ entire footprint, either, and that it was essential for the fund to be successful.

But as recently as this month, sources said that leadership had warned staff in all-hands meetings that if the contract with J.P. Morgan doesn’t renew in December, then people in those programs should be ready to go to other programs or apply for other internal roles if they are willing to relocate, or they may be exited from the company.

It is unclear when the returns of Advancing Cities are expected, but if it follows a traditional fund cycle, J.P. Morgan could be waiting at least seven years to see the results of the $80 million investment. This December, however, comes well before then.

Current and former Techstars employees can contact Dominic-Madori Davis by email at dominic.davis@techcrunch.com or on Signal, a secure encrypted messaging app, at +1 646.831.7565. You can also contact Mary Ann Azevedo by email at maryann@techcrunch.com or by Signal at +1 408.204.3036.

More TechCrunch

The fresh funds were raised from two investors who transferred the capital into a special purpose vehicle, a legal entity associated with the OpenAI Startup Fund.

OpenAI Startup Fund raises additional $5M

Accel has invested in more than 200 startups in the region to date, making it one of the more prolific VCs in this market.

Accel has a fresh $650M to back European early-stage startups

Kyle Vogt, the former founder and CEO of self-driving car company Cruise, has a new VC-backed robotics startup focused on household chores. Vogt announced Monday that the new startup, called…

Cruise founder Kyle Vogt is back with a robot startup

When Keith Rabois announced he was leaving Founders Fund to return to Khosla Ventures in January, it came as a shock to many in the venture capital ecosystem — and…

From Miles Grimshaw to Eva Ho, venture capitalists continue to play musical chairs

On the heels of OpenAI announcing the latest iteration of its GPT large language model, its biggest rival in generative AI in the U.S. announced an expansion of its own.…

Anthropic is expanding to Europe and raising more money

If you’re looking for a Starliner mission recap, you’ll have to wait a little longer, because the mission has officially been delayed.

TechCrunch Space: You rock(et) my world, moms

Apple devoted a full event to iPad last Tuesday, roughly a month out from WWDC. From the invite artwork to the polarizing ad spot, Apple was clear — the event…

Apple iPad Pro M4 vs. iPad Air M2: Reviewing which is right for most

Terri Burns, a former partner at GV, is venturing into a new chapter of her career by launching her own venture firm called Type Capital. 

GV’s youngest partner has launched her own firm

The decision to go monochrome was probably a smart one, considering the candy-colored alternatives that seem to want to dazzle and comfort you.

ChatGPT’s new face is a black hole

Apple and Google announced on Monday that iPhone and Android users will start seeing alerts when it’s possible that an unknown Bluetooth device is being used to track them. The…

Apple and Google agree on standard to alert people when unknown Bluetooth devices may be tracking them

The company is describing the event as “a chance to demo some ChatGPT and GPT-4 updates.”

OpenAI’s ChatGPT announcement: Watch here

A human safety operator will be behind the wheel during this phase of testing, according to the company.

GM’s Cruise ramps up robotaxi testing in Phoenix

OpenAI announced a new flagship generative AI model on Monday that they call GPT-4o — the “o” stands for “omni,” referring to the model’s ability to handle text, speech, and…

OpenAI debuts GPT-4o ‘omni’ model now powering ChatGPT

Featured Article

The women in AI making a difference

As a part of a multi-part series, TechCrunch is highlighting women innovators — from academics to policymakers —in the field of AI.

10 hours ago
The women in AI making a difference

The expansion of Polar Semiconductor’s facility would enable the company to double its U.S. production capacity of sensor and power chips within two years.

White House proposes up to $120M to help fund Polar Semiconductor’s chip facility expansion

In 2021, Google kicked off work on Project Starline, a corporate-focused teleconferencing platform that uses 3D imaging, cameras and a custom-designed screen to let people converse with someone as if…

Google’s 3D video conferencing platform, Project Starline, is coming in 2025 with help from HP

Over the weekend, Instagram announced it is expanding its creator marketplace to 10 new countries — this marketplace connects brands with creators to foster collaboration. The new regions include South…

Instagram expands its creator marketplace to 10 new countries

You can expect plenty of AI, but probably not a lot of hardware.

Google I/O 2024: What to expect

The keynote kicks off at 10 a.m. PT on Tuesday and will offer glimpses into the latest versions of Android, Wear OS and Android TV.

Google I/O 2024: How to watch

Four-year-old Mexican BNPL startup Aplazo facilitates fractionated payments to offline and online merchants even when the buyer doesn’t have a credit card.

Aplazo is using buy now, pay later as a stepping stone to financial ubiquity in Mexico

We received countless submissions to speak at this year’s Disrupt 2024. After carefully sifting through all the applications, we’ve narrowed it down to 19 session finalists. Now we need your…

Vote for your Disrupt 2024 Audience Choice favs

Co-founder and CEO Bowie Cheung, who previously worked at Uber Eats, said the company now has 200 customers.

Healthy growth helps B2B food e-commerce startup Pepper nab $30 million led by ICONIQ Growth

Booking.com has been designated a gatekeeper under the EU’s DMA, meaning the firm will be regulated under the bloc’s market fairness framework.

Booking.com latest to fall under EU market power rules

Featured Article

‘Got that boomer!’: How cybercriminals steal one-time passcodes for SIM swap attacks and raiding bank accounts

Estate is an invite-only website that has helped hundreds of attackers make thousands of phone calls aimed at stealing account passcodes, according to its leaked database.

15 hours ago
‘Got that boomer!’: How cybercriminals steal one-time passcodes for SIM swap attacks and raiding bank accounts

Squarespace is being taken private in an all-cash deal that values the company on an equity basis at $6.6 billion.

Permira is taking Squarespace private in a $6.9 billion deal

AI-powered tools like OpenAI’s Whisper have enabled many apps to make transcription an integral part of their feature set for personal note-taking, and the space has quickly flourished as a…

Buy Me a Coffee’s founder has built an AI-powered voice note app

Airtel, India’s second-largest telco, is partnering with Google Cloud to develop and deliver cloud and GenAI solutions to Indian businesses.

Google partners with Airtel to offer cloud and GenAI products to Indian businesses

To give AI-focused women academics and others their well-deserved — and overdue — time in the spotlight, TechCrunch has been publishing a series of interviews focused on remarkable women who’ve contributed to…

Women in AI: Rep. Dar’shun Kendrick wants to pass more AI legislation

We took the pulse of emerging fund managers about what it’s been like for them during these post-ZERP, venture-capital-winter years.

A reckoning is coming for emerging venture funds, and that, VCs say, is a good thing

It’s been a busy weekend for union organizing efforts at U.S. Apple stores, with the union at one store voting to authorize a strike, while workers at another store voted…

Workers at a Maryland Apple store authorize strike