Techstars cut The decision to reduce staff and close certain accelerators came after the company failed to meet its 2023 revenue goals, according to a preliminary 2023 financial summary document seen by TechCrunch. .
Techstars also lost millions of dollars more than expected (on adjusted EBITA) by the end of the year, outlined in an additional document discussing its mid-year results. And the documents show that the company's costs are too high relative to its revenue.
Techstars recently shut down accelerators in Boulder and Seattle after suspending its Austin-based program. The company laid off about 7% of its workforce and last week announced a major operational overhaul, calling the changes “Techstars 2.0.” The document details several aspects of Techstars' 2023 financial performance, but these are based on preliminary data as of January, and final year-end numbers may differ. Techstars declined to comment.
The economic headwinds that Techstars experienced in 2023 are not unique. Many companies in the startup and venture industry, including Techstars' competitors, have been forced to adapt to top-line performance that did not meet internal expectations after rising interest rates upended the economic landscape.
Some funds are making more drastic choices, such as closing due to internal issues. Other companies are finishing on more planned schedules. Even Y Combinator has returned somewhat to its roots as an early-stage investor and is moving away from late-stage deals.
Techstars' change in structure in that context is therefore not surprising. But the numbers provide valuable insight into the economics of running an accelerator group the size of Techstars.
Financial realities of operating large-scale accelerators
The internal data also revealed that Techstars' expenses exceeded its ability to generate revenue in 2023, explaining why the company has been working to reduce its geographic footprint and reduce its overall headcount. Helpful.
There were an average of 54 active accelerator programs per year, leading to 682 graduating portfolio companies and total revenue of $73.1 million in 2023, according to the document.
Still, a separate document detailing the company's full-year budget and mid-year projections for its goals shows that the company's 2023 revenue was significantly lower than expected. The company originally reported revenue of $94.8 million. In June 2023, Techstars lowered its forecast for this year to $88.2 million. Year-end numbers, $15 million short of already lowered expectations, help explain why the company is cutting costs.
In terms of expenses, Techstars ended the year with lower costs than expected in early 2023 or even mid-year. Initially, program costs were budgeted at $39.9 million and operating costs at $63.8 million. As of June, Techstars thought it would end the year having spent $38.1 million and $60.5 million, respectively. But year-end data showed program spending was just $34.3 million and operating costs were $53.5 million.
The cost shortfall may be due to fewer accelerators operating than expected. Techstars' 2023 budget targeted an average of 68 “active accelerator programs,” which was reduced to 61 in the mid-year forecast. Revised estimates bring the final figure to four.
2023 revenue was lower than expected, but costs weren't that high, so how much did Techstars earn last year? The company had already expected to end the year in the red, but The year ended with a deficit that far exceeded that of the previous fiscal year. The company had expected an adjusted EBITDA loss of $600,000 in early 2023, but at midyear it expected to end the year with an adjusted profit of -$1.9 million. The final number was -$7.2 million.
The good news is that Techstars has enough cash in 2023 to address these issues, and its ending cash balance in 2023 was actually much better than originally expected. The company had ended the year with a cash balance of $43.5 million, but expected it to be $50.7 million by mid-year. The actual year-end balance was $48.7 million, meaning the company started the year with more cash than originally planned, even if the final number was lower than mid-year expectations.
Is that a lot of cash?
For Techstars, that's a lot of cash. Multiple sources who spoke to TechCrunch expressed concern that Techstars is cash-strapped and said it could be cash-strapped by the end of 2024. But those documents reveal that the company closed last year with about $50 million in cash to run its operations. budget. Funds used to invest in start-up companies and proceeds from investment vehicles are not counted in the company's operating cash balance.
However, our sources also suggest that the funds Techstars used to support its 2024-era accelerator program (or should we say Techstars 1.0) will complete its investment cycle this year. This is not surprising. Investment funds are supposed to be used to invest in startups. Based on the analysis of these documents, the parent company is well capitalized.
TechCrunch has yet to confirm whether the 2023 layoffs and programs will be enough, or whether more city accelerators and other programs will be shut down. The company recently laid off about 20 people, or 7%, a source confirmed to TechCrunch.
“We recently had a reorganization and several people left. In markets where we stopped running accelerator programs, we tried to redeploy people to other roles and other jobs in other markets,” said Techstars CEO Maëlle. Gavet told TechCrunch last week. She explained that the company currently has just over 300 employees, divided into two groups: those working on accelerator/ecosystem programs and those working on infrastructure programs.
However, a recent all-hands meeting reviewed by TechCrunch revealed that the company's executive directors are still working to reduce operating expenses. Combined with the 7% headcount reduction, these cuts will save the company more than $8 million this year, sources told TechCrunch. If the company cuts more programs, its cash burn could become negligible even without revenue growth.
Techstars is cutting jobs and restructuring, but year-end data doesn't show the company is in dire straits. Rather, Techstars had become too large for its revenue base in a post-zero interest rate world, so cutting costs seems to have been a natural move. It remains to be seen whether Techstars is making the right strategic choice for what it is eliminating, as some critics and former employees have questioned. But from a purely financial perspective, the choice is easy.
Current and former Techstar employees can contact Dominic-Madri Davis via email at dominic.davis@techcrunch.com or via the secure encrypted messaging app Signal at +1 646.831.7565. Or, contact Mary Ann Azevedo via email at maryann@techcrunch.com or Signal at +1 408.204.3036.