Techstars 2.0
Techstars has been dragged through the mud this week.
The company (which also happens to be my employer) announced a major change in its business model.
It’s called Techstars 2.0.
Here’s what the new model entails:
Reduce Techstars’ core accelerator footprint down to four cities - New York, Los Angeles, Boston, and the Bay Area.
Increase 1:1 support for founders, primarily with respect to fundraising.
Continue to support smaller tech ecosystems through partner programs and events like Founder Catalyst, Startup Weekend, etc.
The first bullet point got all the negative attention.
Focusing on four cities means some long-standing programs will be closing.
Seattle, Boulder, Chicago, London, Toronto, Paris, Tel Aviv and Austin are on the list.
Many people in these cities aren’t happy with the decision. Rightfully so.
Techstars has been operating in most of these cities for over a decade. Yet we’re voluntarily closing the tight-knit startup communities that we worked so hard to build.
Techstars also employs hundreds of people in these cities that have relationships with hundreds more mentors and investors.
Unfortunately, we’ll likely lose many of these colleagues over the next few months that choose not to relocate to one of the four chosen cities.
I’ve been pretty bummed myself as I’ve witnessed first-hand the backlash over the Austin program closing.
A few people wrote about the closures much more eloquently than I can. Here’s founder David Cohen’s take and here’s former MD Nicole Glaros’.
I can address the business side of the move, however.
Techstars is now a data-driven company and the data supports Techstars 2.0.
A few months ago I wrote an article titled Don’t Start a VC Fund in Kentucky.
There are many parallels here to Techstars’ move.
The gist of my article was that I found myself in a conversation with a VC from Kentucky and immediately felt bad for the guy.
That’s because the data shows VCs underperform outside of a few major cities.
If you compare Kentucky to the Bay Area, for example, there are massive benefits to being a VC in the Bay Area.
The Bay Area consistently accounts for 35%+ of US venture capital activity.
This gives Bay Area companies the cash necessary to fund the “growth at all costs” strategy that’s been so prevalent over the last decade - where companies consistently lost money in order to attract users with the hopes of monetizing them down the road.
This helps Bay Area companies attract the best talent from around the globe.
This also allows for “greater fool theory” to take shape. Greater fool sounds a bit harsh. I don’t necessarily mean it to be in this context. But it’s basically the notion that there’s so much cash chasing a finite number of startups, there’s simply a higher chance in the Bay Area that another VC will invest after you, pushing the value of your investment higher.
These benefits hardly exist in Kentucky.
Kentucky startups can’t lose money in the name of attracting users. They can’t attract the best talent. And there aren’t many “greater fools” looking to push valuations higher.
The data backs this up.
Both early- and late-stage valuations are higher in cities like SF, NY, etc., and the percentage of outliers created is higher than cities like Seattle, Boulder, London, and yes… Lexington, Kentucky.
As much as it sucks to close tight knit startup communities like I was apart of in Austin, at the end of the day VCs are in business to make money.
Techstars 2.0 gives us the best shot to do that.