During a Zoom meeting with senior leaders last summer, Techstars CEO Maëlle Gavet sat at a table with a notebook open in front of her, her laptop beside her and her arms crossed. Her audience had just asked her about the progress of the organization's $80 million Advanced Cities Fund, raised through JPMorgan's private bank platform.
In a calm manner that seemed to be listening closely to her words, she replied that “Advancing Cities'' was not working. Multiple incidents across multiple programs have roiled JPMorgan, according to sources familiar with the conversations, including evidence seen by TechCrunch.
Techstars had begun forming cohorts and rolling out funds starting in 2022, with the goal of backing more than 400 companies founded by underrepresented founders. This led to his creation of Techstars programs in at least eight cities, including Oakland, Atlanta, and Miami.
However, by the time the meeting was held in August 2023, JPMorgan's team had “departed,” as seven people involved in the program independently described it to TechCrunch. Gavet acknowledged at the conference that the rift in the relationship was not entirely the bank's fault, and that Techstars' missteps were a major cause of the tension.
Techstars currently invests about two-thirds of the fund, Gavet recently told TechCrunch, adding that the bank is a “great partner” and “very active in our program.”
But JPMorgan has not yet told Techstars whether it will renew the partnership for the Advance Cities 2 fund after the original agreement expires in December, the people said. The decision was expected to be made last summer so Techstars could begin raising capital and begin deploying capital in 2025.
This means the fate of the Advancing Cities program, and the approximately 20 people who work at Techstars who are part of the program, is up in the air.
JPMorgan and Techstars both declined to comment on the future of their partnership. But Techstars spokesman Matthew Grossman stressed that the current fund is still active, having invested in 263 companies and plans to support 200 more. And like every other venture fund, once that fund is deployed, we'll see what happens next,” he told TechCrunch.
“A long series of incidents”
Techstars is restructuring its operations around the world, cutting programs, laying off staff and closing accelerators in cities including Oslo, Austin and its former mothership, Boulder, Colorado. The company missed its 2023 revenue forecast and posted a $7 million loss, according to preliminary numbers seen by TechCrunch.
At the same time, Techstars is known for supporting founders of color and giving them opportunities they wouldn't otherwise have. Access to capital can be life-changing, as funding for founders of color is chronically disastrous.
To outsiders, the program's uncertain future may make it seem like JPMorgan is simply backing away from its diversity commitments, similar to the many corporate institutions that backed away from their commitments after the killing of George Floyd. I don't know. But several current and former Techstars employees said Techstars has struggled to live up to the high expectations JPMorgan had when it partnered with the company on the fund.
Mr. Gavet became CEO of Techstars in 2021.
A Techstars presentation at another conference, also held in August, noted a “protracted series of incidents” since Techstars began rolling out its Advancing Cities Fund in 2022. These incidents included multiple complaints regarding multiple program directors and event issues involving conduct, programming, naming, and sponsorship. According to people familiar with the matter, the bank withdrew its branding due to concerns that politicians had been invited to a demo day.
JPMorgan also issued warnings to four instances of “inappropriate” language regarding Techstars' diversity goals. For example, Gavat and the managing director preferred to call the Oakland program Techstars Silicon Valley, despite JPMorgan's intention to emphasize the accelerator's focus and presence in prominent Black cities. did. Eventually, his accelerator program was named after Oakland.
Techstars has received complaints from founders about one managing director of its Advancing Cities program, including allegations of harsh working conditions, according to at least three people familiar with the matter. TechCrunch could not confirm the specific allegations, but learned that the managing director has since left the program and is now heading up another Advancing Cities program. Techstars and JPMorgan declined to comment on the incident.
Conflicting definitions of diversity
One of the biggest problems, according to sources and documents reviewed by TechCrunch, is that JPMorgan has allocated at least 50%, and ideally 70%, of each city group's investments to undervalued investments that meet certain definitions. He wanted to invest in startups led by founders. Diverse Founders.
However, data seen by TechCrunch shows that diversity in the Advancing Cities program began a steady decline last year below the baseline. At one point last year, at least one program wasn't hitting his 50% of the benchmarks at all, while others were making up by hitting close to his 70%.
For $80 million, JPMorgan simply expected a better result, the people said.
JPMorgan had offered Techstars a narrow definition of its founders as diverse, including those who are Black, Latinx, Indigenous or Pacific Islander. However, internally at Techstars, we used a broader definition of the term that incorporated gender, age, veteran status, disability, and immigration status. As a result, managing directors will have the option to add two different DEI tags to describe their companies: JPMorgan Diversity and/or Techstars Diversity, according to documents seen by TechCrunch. Ta.
The five people involved, some of whom are no longer with the company, said that while there has always been a focus on increasing gender diversity within Techstars programs, race has been sidelined. He said he was deaf. Some managing directors have had trouble sourcing founders that are considered diverse by JPMorgan's standards. The different tags and broad definition of diversity have allowed Techstars to come up with some numbers when publicly stating the program's diversity breakdown, according to three people familiar with the matter. That's what it means.
Techstars denied this characterization. “We measure different datasets for different purposes,” Grossman told Techcrunch. “We believe we should invest in undervalued founders. And when we say undervalued, we mean everyone who is not under traditional venture capital oversight. I mean it.”
Techstars is restructuring its business to cut costs.
As of late last year, 63.5% of Advance Cities CEOs admitted to the program who agreed to self-report their race were Black, Latinx, Indigenous, or Pacific Islander, Grossman said. He emphasized that. He added that all but one cohort met the 50% goal. The report, published late last year, only covered the first half of the fund's investments and acceptance of the first cohort. The percentage of diversity among graduates was not disclosed.
Payment linked to earnings
Another source of friction was that JPMorgan wanted to skew the program's focus toward a higher percentage of diverse founders, whereas, like other investment firms, Techstars is based primarily on returns. Directors are being compensated.
That means managing directors are trained to look for startups that have graduated from the program and are likely to get their next round of funding from other VCs. This has created a new demographic, with some managing directors prioritizing program acceptance on metrics other than founder diversity.
“We've always said we're looking for the best founders,” explained Monica Wheat, managing director of the Detroit Advanced Cities Program. “We have always said that we also target underrepresented founders. We are investors first and foremost.”
Techstars said the managing director's compensation includes carried interest that is a portion of fund profits and a cash bonus. To align compensation with JPMorgan's mission, a portion of Advancing Cities' managing director bonuses are tied to the number of startups that meet diversity criteria.
In addition to friction over acceptance priorities, JPMorgan was also frustrated by high turnover among executives, four people familiar with the matter said. 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 left the executive team. This is in addition to the transfer of at least 10 managing directors and other staff who have left the company for various reasons.
At a meeting with Gavet back in August, when she confessed to the precarious state of the program, attendees peppered her with questions, primarily about who would replace her if JPMorgan Bank decided to end the partnership. I asked him if it would be possible. Gavat said it would be difficult, if not impossible, to replace JPMorgan as a funding partner, she explained. That's because JPMorgan is one of the few banks with a funding platform that allows qualified investors to back early-stage startups. Sources and records reviewed by Techcrunch say it will be difficult to raise funds on your own, given the overall difficult funding environment in 2024.
She added that Techstars' own accelerator fund also cannot take over Advancing Cities' entire operations, which is essential to the fund's success.
But as of this month, sources said, leadership told staff in an all-hands meeting that if the contract with JPMorgan is not renewed in December, staff from those programs will be transferred to other programs or within the company. He said he had warned her that she should be ready to apply to other programs. If you are willing to transfer, you will be given the role. If not, you may leave the company.
It's unclear when Advancing Cities' revenue is expected, but if it follows traditional funding cycles, it could take JPMorgan at least seven years to see results from its $80 million investment. But this year he comes much earlier than that in December.
Current and former Techstars employees can contact Dominic Madri-Davis by email at dominic.davis@techcrunch.com or via the secure encrypted messaging app Signal at +1 646.831.7565. You can also contact Mary Ann Azevedo by email at maryann@techcrunch.com or Signal at +1 408.204.3036.