While zooming At a meeting with her senior leaders last summer, Techstars CEO Maëlle Gavet sat at a table, a notebook open in front of her, a laptop at her side, her arms crossed. An attendee had just asked her about progress on the organization's $80 million Advancing Cities Fund, raised through JP Morgan's private bank platform.
With the calm demeanor of someone trying to watch her words, she replied that the Advanced Cities Initiative was not going well. Multiple incidents across multiple programs caused JPMorgan to panic, according to sources familiar with the conversation, including evidence seen by TechCrunch.
Techstars has been assembling groups and deploying out-of-the-box since 2022 with the goal of supporting more than 400 companies founded by underrepresented founders. This led to the creation of Techstars programs in at least eight cities, including Oakland, Atlanta and Miami.
But by August 2023, when that meeting took place, the JPMorgan team had become “siloed,” a description seven people associated with the program independently provided to TechCrunch. Gavitt admitted in the meeting that the fractured relationship was not entirely the bank's fault: Mistakes by Techstars had caused a lot of tension.
Techstars is currently invested in about two-thirds of the fund, Gavet recently told TechCrunch, adding that the bank is a “great partner” and “very active in our program.”
However, sources say JPMorgan has not yet told Techstars whether it will renew the partnership for the Advancing Cities 2 fund once the initial contract expires in December. This decision was supposed to be issued last summer so that Techstars could begin raising money and begin deploying capital in 2025.
That means the fate of the Advanced Cities Programs — and some of the roughly 20 people who work at Techstars in that program — is up in the air.
JP Morgan and Techstars declined to comment on the future of the partnership. But Techstars spokesman Matthew Grossman confirmed that the current fund is still active and has invested in 263 companies with plans to back 200 more. “This year, we will continue to deploy the fund until the fund is deployed. And then, like any other mutual fund, after this fund is deployed, we'll see what happens next.
“A long chain of events”
Techstars is undergoing an operational restructuring, including cutting programs worldwide, laying off employees, and closing accelerators in cities such as Oslo, Austin, and its former mothership, Boulder, Colorado. It missed revenue forecasts for 2023 and posted a loss of $7 million, according to preliminary numbers seen by TechCrunch.
At the same time, Techstars is known for supporting founders of color and giving them opportunities that would otherwise be difficult to obtain. Funding for founders of color is so chronically bleak that access to capital can change their lives.
From the outside, the uncertainty over the future of this program may appear as if JPMorgan is simply backing away from its diversity promises, following the path of many corporate institutions that backed away from commitments they made after the killing of George Floyd. However, many current and former Techstars employees say Techstars has struggled to live up to the strong expectations JP Morgan had when it partnered with the firm on this fund.
Gavet became CEO of Techstars in 2021. Image credit: Handout/Handout
A Techstars presentation from another meeting also held in August noted a “long series of events” since Techstars began deploying the Advancing Cities Fund in 2022. These complaints included multiple managers in multiple programs, as well as issues with the events, Including behavior. Programming, naming and sponsors. The bank became so concerned about the invitation to a politician at a DemoDay that it pulled its brand, the sources said.
JPMorgan also pointed to four instances of “inappropriate” language around Techstars’ diversity goals. For example, Gavitt and his managing director wanted to name the Oakland program Techstars Silicon Valley despite JPMorgan's intention to emphasize the accelerator's focus on and presence in a prominent black city. Eventually, the accelerator program was named after Oakland.
At least three sources said Techstars had received complaints from founders about a managing director of the Advancing Cities program, with some allegations describing him as hostile work environments. TechCrunch was unable to confirm specific claims, although we have learned that this managing director has since left that program and now heads another program for Advancing Cities. Techstars and JP Morgan declined to comment on the events.
Conflicting definitions of diversity
One of the biggest issues, according to sources and documents seen by TechCrunch, is that JPMorgan wanted at least 50%, but ideally 70%, of each city group's investments in startups led by underrepresented founders who fit the definition of… Defined for diversified founder.
However, data seen by TechCrunch showed that diversity in advanced city programs began to steadily fall below the threshold last year. At one point last year, at least one program did not reach the 50% benchmark at all, although other programs made up for it by reaching nearly 70%.
For $80 million, JPMorgan simply expected better results, the sources said.
JPMorgan gave Techstars a narrow definition of who it considers a diverse founder as well: someone of Black, Latino, Indigenous or Pacific Islander descent. However, internally, Techstars used a much broader definition of the term, including gender, age, veteran, disability, and immigrant status. The result is that directors have the option of adding two different DEI tags to describe the company: JP Morgan Diversified and/or Techstars Diversified, according to documents seen by TechCrunch.
Five people familiar with the matter, some of whom are no longer with the company, said there has always been a focus on increasing gender diversity within Techstars' programs, but race will fall by the wayside. Some managing directors struggled to find founders who could be considered diverse by J.P. Morgan's standards. Different labels and a broad definition of diversity have helped Techstars spin some numbers when it comes to publicly announcing diversity details in its programs, three sources familiar with the matter said.
Techstars denied this characterization. “We measure different data sets for different purposes,” Grossman told TechCrunch. “We believe in investing in underrepresented founders. And when we say underrepresented, we mean everyone who doesn't traditionally fall under the radar of traditional venture capital.
Techstars is undergoing an operational restructuring as it attempts to reduce costs. Image credits: John Blanding/Boston Globe/Getty Images
Grossman confirmed that as of late last year, 63.5% of CEOs of advanced cities accepted into the program, who agreed to self-report their race, were Black, Latino, Indigenous or Pacific Islander. He added that every group except one had achieved the 50% goal. This report, published late last year, covers only the first half of the fund's investment and the group's initial admission. The percentage of diversity among graduates was not determined.
Payment is linked to returns
Another source of friction was that JPMorgan wanted the program to focus on a high percentage of diverse founders, but, like all venture firms, Techstars rewards managing directors primarily based on returns.
This means that managing directors are trained to look for startups that they believe are likely to graduate from the program and obtain subsequent funding from other venture capital firms. This provided another layer, causing some managers to prioritize program acceptance over metrics other than founder diversity.
“We've always said we're looking for the best founders,” explained Monica Witt, executive director of the Detroit Advancing Cities program. “We've also always said we do this but we target underrepresented founders. We do it specifically through the CEOs' networks and their experience as investors. We are investors first and foremost.”
Managing directors' compensation includes carried interest, also known as a percentage of the fund's profits, and a cash bonus, Techstars said. To align bonuses with JPMorgan's mission, a certain percentage of bonuses for managing directors in developed cities is tied to the number of startups that meet diversity criteria.
In addition to the disagreement over admissions priorities, four sources said JPMorgan was also frustrated with what it saw as high employee turnover in the leadership group. Since last year, the accelerator's chief revenue officer, chief technology officer, chief financial officer, accelerator's chief investment officer, chief capital formation officer, and chief legal officer have all departed. This is in addition to more than 10 managing directors who left the company for various reasons and other staff turnover.
Returning to the August meeting with Gavitt, once she acknowledged the fragile state of the program, attendees peppered her with questions, the main question being who would replace JPMorgan if the bank decided to end the partnership. Gavitt explained that replacing JPMorgan as a fundraising partner would be difficult, if not impossible, because it is one of the few banks with a fundraising platform that allows qualified investors to back early-stage startups. Raising money on its own will be difficult, given the generally challenging fundraising environment in 2024, according to sources and records seen by TechCrunch.
She added that Techstars' accelerator fund couldn't capture Advancing Cities' entire footprint either, and that it was essential for the fund to be successful.
But as recently as this month, sources said leadership warned staff in all-hands meetings that if the contract with JPMorgan is not renewed in December, people in those programs should be prepared to go to other programs or apply for other programs. . internal roles if they are willing to move, or they may be exited from the company.
It's not clear when developed city returns are expected to return, but if it followed a traditional fund cycle, JPMorgan could wait at least seven years to see the results of the $80 million investment. But next December comes much earlier than that.
Current and former Techstars employees can contact Dominic-Madori Davis via email at dominic.davis@techcrunch.com or on Signal, a secure encrypted messaging app, at +1 646.831.7565. You can also contact Mary Ann Azevedo via email at Maryann@techcrunch.com or via Signal at +1 408.204.3036.
