Leaked documents show Techstars lost $7 million in 2023 but still had plenty of cash

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Cuts at Techstars The staff and its decision to close some accelerators came after it missed its 2023 revenue targets, according to documents describing 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, additional documents discussing mid-year performance point out. And the company’s costs were too high relative to its revenue, the documents show.

Techstars recently closed its Boulder and Seattle accelerators after suspend its Austin-based program. It laid off about 7% of its staff and last week announced such a major overhaul of its operations that it dubbed modifies “Techstars 2.0”. Although the documents detailed several aspects of Techstars’ financial performance for 2023, they were based on preliminary data from January and final year-end figures may differ. Techstars declined to comment.

The financial difficulties faced by Techstars in 2023 are not unique. Many members of the startup landscape, including Techstars’ competitors, have been forced to adapt to top-tier results that haven’t met internal expectations after rising interest rates upended the landscape economic.

Some funds make more drastic choices such as closing due to internal problems; others come close to a more planned schedule. Even Y Combinator has returned somewhat to its roots as an early-stage investor, withdrawing from further negotiations.

Techstars’ retooling in this context is therefore 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 clearly shows that Techstars’ expenses have exceeded its ability to generate revenue in 2023, which explains why the company has been working to reduce its geographic footprint and total headcount.

There were 54 active accelerator programs on average during the year, leading to 682 portfolio companies graduating and total revenue for 2023 was $73.1 million, according to the documents.

Despite this, a separate document detailing the company’s annual budget and half-year guidance against those targets indicates that the company’s 2023 revenue was significantly lower than expected. The company had initially forecast revenue of $94.8 million. In June 2023, Techstars lowered its forecast for the year to $88.2 million; its year-end figure – a $15 million shortfall from its already reduced expectations – helps explain why the company is cutting costs.

In terms of spending, Techstars ended the year with lower costs than it expected at the start of 2023, or what it forecast at mid-year. It initially forecast program spending at $39.9 million and operating spending at $63.8 million. In June, Techstars expected to close the year spending $38.1 million and $60.5 million, respectively. However, year-end data puts program expenses at just $34.3 million and operating expenses at $53.5 million.

The underestimation of costs may be due to fewer accelerators operating than expected. Techstar’s 2023 budget targeted an average of 68 “active accelerator programs” but was reduced to 61 in its mid-year forecast. The final figure came in four below its revised estimate.

With revenues below expectations in 2023, but also more modest costs, how profitable was Techstars last year? The company had already planned to end the year with a loss, but the year ended much more in the red than expected. It had budgeted for an adjusted EBITDA loss of $600,000 at the start of 2023, and by mid-year the company expected its adjusted profit to close the year at a negative $1.9 million. of dollars. The final figure was a negative $7.2 million.

The good news is that TechStars had enough liquidity in 2023 to weather these issues and its ending cash balance in 2023 was actually much better than initially expected. It had budgeted a year-end cash balance of $43.5 million and projected $50.7 million at midyear. Its actual result, a year-end balance of $48.7 million, means the company started the year with more cash than initially expected, although the final figure was lower than its mid-year expectations. year.

Is that a lot of money?

For Techstars, that’s a lot of money. Multiple sources who spoke with TechCrunch expressed concern about Techstars’ lack of liquidity, saying it could run out of funds by the end of 2024. But these documents reveal the company closed its doors last year with approximately $50 million in cash for its operational activities. budget. The capital it uses to invest in startups and the capital raised by its investment vehicles are not reflected in its own operating cash balances.

However, our sources also suggested that the funds Techstars used to support its 2024-era accelerator programs – its TechStars 1.0, if you will – will complete the investment cycle this year. This is not alarming. Investment funds are supposed to be used to invest in startups. And its parent company is well capitalized, based on our analysis of these documents.

TechCrunch has not yet confirmed whether the 2023 staff and program reductions will be sufficient, or whether more urban accelerators or other programs will be closed. It recently laid off around twenty people, or 7%, sources confirmed to TechCrunch.

“We recently carried out a reorganization during which a few people were made redundant. In markets where we stop implementing accelerator programs, we have tried 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 explains, divided into two camps: those who work on accelerator/ecosystem programs and those who work on infrastructure programs.

However, a recent all-hands meeting seen by TechCrunch revealed that CEOs are still trying to reduce operating expenses. Along with the 7% staff reduction, these 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 winding down and rebuilding, but its year-end data doesn’t paint a picture of a company in dire straits; instead, it appears that Techstars has outgrown its revenue base by the post-zero interest rate policy world and cost reductions were a logical step to take. Is Techstars making the right strategic choices in what it cancels – like some critics and former employees have questioned – that remains to be seen. But in purely fiscal terms, the choices are easy to make.

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.

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