Cuts to Techstars The staff and its decision to close certain accelerators came after it missed its 2023 revenue targets, according to documents outlining its preliminary 2023 results seen by TechCrunch.
Techstars also lost millions of dollars more at the end of the year (in adjusted EBITA) than it had anticipated, according to additional filings analyzing midyear performance. And the company’s costs were too high compared to its revenues, the documents indicated.
Techstars recently closed its Boulder and Seattle accelerators after suspending its Austin-based program. It laid off about 7% of its staff and, last week, announced an overhaul of its operations so major that it called the changes “Techstars 2.0.” Although the documents detail various aspects of Techstars’ financial performance in 2023, they were based on preliminary data from January and its final year-end figures may differ. Techstars declined to comment.
The financial obstacles Techstars experienced in 2023 are not unique. Many members of the startup landscape, including Techstars’ competitors, have been forced to adjust to top-line results that fell short of internal expectations after rising interest rates disrupted the economic outlook.
Some funds are making more drastic decisions, such as closing due to internal problems; others are moving toward a more planned schedule. Even Y Combinator has somewhat returned to its roots as an early-stage investor, stepping away from later-stage deals.
Therefore, Techstars’ restructuring in that context is not surprising. But the numbers give us a rare glimpse into the economics of running an accelerator group the size of Techstars.
The financial realities of running a massive accelerator
This internal data also makes it clear that Techstars’ expenses exceeded its ability to generate revenue in 2023, which helps explain why the company has worked to reduce its geographic footprint and overall headcount.
It had 54 active accelerator programs on average during the year, leading to 682 portfolio companies graduating and total revenue for 2023 reaching $73.1 million, according to the filings.
Still, a separate document detailing the company’s annual budget and a mid-year forecast based on those goals indicates that the company’s 2023 revenue fell well short of expectations. The company initially budgeted revenue of $94.8 million. In June 2023, Techstars lowered its guidance for the year to $88.2 million; Its year-end figure — a $15 million shortfall from its already lowered expectations — helps explain why the company is cutting costs.
In terms of expenses, Techstars ended the year with lower costs than it anticipated in early 2023, or than it forecast mid-year. They initially budgeted program expenses at $39.9 million and operating expenses at $63.8 million. In June, Techstars thought it would close the year spending $38.1 million and $60.5 million, respectively. However, year-end data puts program spending at just $34.3 million and operating expenses at $53.5 million.
Undercosts may be due to fewer accelerators operating than expected. Techstars’ 2023 budget targeted an average of 68 “active accelerator programs,” but was reduced to 61 in its mid-year forecast. The final figure was four below its revised estimate.
With lower-than-expected revenue in 2023, but also more modest costs, how profitable was Techstars last year? The company had already anticipated ending the year with a loss, but the year ended in much deeper red numbers than it had estimated. It had budgeted for an adjusted EBITDA loss of $600,000 in early 2023; At midyear, the company expected its adjusted profit to close the year at negative $1.9 million. The final figure was negative 7.2 million dollars.
The good news was that Techstars had plenty of cash in 2023 to handle these issues and its ending cash balance in 2023 was actually much better than originally anticipated. It had budgeted a year-end cash balance of $43.5 million and by mid-year it had forecast $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 figure was below its mid-year expectations.
Is that a lot of cash?
For Techstars, that’s a lot of cash. Several sources who spoke to TechCrunch indicated some concern that Techstars was running out of cash, saying it could run out of funds by the end of 2024. But these documents reveal that the company closed last year with around $50 million in cash for its operation. . budget. The capital you use to invest in startups and the capital raised from your investment vehicles are not accounted for in your own operating cash balances.
However, our sources have also suggested that the funds Techstars used to support its 2024-era acceleration programs (its Techstars 1.0, so to speak) will complete the investment cycle this year. This is not alarming. Mutual funds are supposed to be used to invest in startups. And its parent company is well capitalized, according to our analysis of these documents.
TechCrunch has not yet confirmed whether the 2023 staff and program cuts will be enough, or if more city accelerators or other programs will be closed. It recently laid off about 20 people, or 7%, sources confirmed to TechCrunch.
“We had a reorganization recently where some people were laid off. In markets where we stopped running acceleration programs, we try to reassign 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, she explained, divided into two camps: those working on accelerator/ecosystem programs and those working on infrastructure programs.
However, a recent meeting seen by TechCrunch revealed that CEOs were still trying to reduce operating expenses. In addition to the 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 pulling back and rebuilding, but its year-end data doesn’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 and cost cuts were a logical step to take. It remains to be seen whether Techstars is making the right strategic decisions in what it is rejecting, as some critics and former employees have questioned. But in purely fiscal terms, the options are easy to digest.
Current and former Techstar employees can contact Dominic-Madori Davis by email at dominic.davis@techcrunch.com or on Signal, a secure encrypted messaging application, at +1 646.831.7565; or contact Mary Ann Azevedo by email at maryann@techcrunch.com or by Signal at +1 408.204.3036.
