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Newchip, the online accelerator that promised to assist startups, is currently facing insolvency and has filed for bankruptcy. The organization has been met with discontent from both employees and clients, leading to a walkout by dozens of employees on May 4. The main demand of the protesting employees was the immediate resignation of founder Andrew Ryan as CEO.
According to Ryan’s LinkedIn profile, he established Austin-based Newchip in 2016 after serving as a city commissioner in Austin for over seven years. Initially, Newchip started as an aggregator of top deals from various equity-based crowdfunding platforms, as reported by Silicon Hills News. Over time, it transformed into its current accelerator model. Ryan describes Newchip on his LinkedIn profile as an entity that equips entrepreneurs with the necessary skills and tools to build, scale, and fund their startups from launch to exit through its online global accelerator and venture fund.
Newchip positioned itself as an accelerator that would facilitate startups in meeting investors, raising funds, and growing their companies in exchange for a fee. However, the accelerator failed to deliver on several of its promises, resulting in dissatisfaction among some employees and leaving founders who had signed up feeling abandoned.
According to the interview with some founders and discussions on LinkedIn, the fees charged by Newchip, ranging from a few thousand dollars to as much as $18,000 or $20,000, were considered excessively high for the services provided. Some founders also found it challenging or impossible to obtain a refund when the accelerator failed to fulfill its commitments.
Among the complaints voiced by eight former employee was Ryan’s alleged mismanagement. They claimed that Ryan exhibited aggressive behavior toward individuals within the company, both in written and verbal communications, and made poor decisions regarding leadership roles.
One anonymous former employee revealed that Ryan would often hire inexperienced or “yes man” employees and would be verbally abusive, using degrading and demeaning language such as claiming he was too brilliant to waste his time on them. Ryan admitted that his leadership style was influenced by a “military mindset” and acknowledged that there were instances where the line between accountability and conflict became blurred, which might have come across as demeaning.
In response to questions about his leadership style, Ryan explained that he placed emphasis on preparation and would sometimes walk out of or abruptly end meetings that lacked an agenda.
During an interview and with LinkedIn posts, Ryan primarily attributed the company’s downfall to the macro environment, managers, and employees. He claimed to be in discussions with various VC firms, family offices, and PE firms to develop a continuity plan.
Newchip, operating under Astralabs, filed for Chapter 11 bankruptcy in March, revealing a significant disparity between its assets, valued at $1.7 million, and its liabilities, totaling $4.8 million. The case was later converted to Chapter 7 liquidation by a bankruptcy judge. Crunchbase data also highlights Newchip’s history of financial losses, with net losses of $197,884 in 2016 and $748,999 in 2017, along with $4.5 million in tax loss carryforwards reported in its 2020 financial statements.
Ryan asserted that the recent walkout by employees was triggered by the company’s plan to conduct additional layoffs and was led by a Newchip investor, believed to be Joe Merrill, who also served as the chief of Newchip’s board. Ryan stated that the company had already downsized, reducing its workforce from over 200 employees to approximately 75 at the beginning of the month due to the need for cost-cutting measures.
The group of eight former employees who spoke to refuted claims that they walked out due to concerns about potential layoffs or non-payment. Instead, they cited Ryan’s lack of leadership and mismanagement as the primary reasons for their walkout. In a letter shared with Grey Journal, the employees expressed their concerns about the dismissal of key personnel, which they believed had eroded trust and morale within the organization, creating a toxic work environment. They demanded the reinstatement of the executives and the immediate resignation of Andrew Ryan as CEO. However, none of their demands were met, and the situation remained unresolved.
Andrew Goei, the founder of PitchPages, a pitch deck and fundraising software startup, also shared his disappointing experience with Newchip. Goei stated that he sought a refund a few months into the program after realizing that the promised services, especially investor introductions, were not being provided. Despite paying $8,000, Goei claimed that there was a lack of communication from Newchip, and when he sought customer support, he was denied a refund. He expressed disappointment that Newchip, founded by someone from the VC community, operated with a profit-oriented mindset, prioritizing the acquisition of as many startups as possible rather than providing value to their clients.
Similarly, Orri Bogdan, the founder of VAE Labs, which is developing an edible energy spray, highlighted the misleading promises made by Newchip’s salespeople. They had assured him a full refund if his company failed to raise funding through their program. However, upon reviewing the terms and conditions, Bogdan discovered extreme stipulations designed to prevent refunds. Consequently, Bogdan declined Newchip’s offer and opted to join a different accelerator, thus avoiding potential losses.
Former Newchip employees further alleged that the company rarely issued refunds and even paid customers to remove negative reviews. Ryan refuted these claims, stating that the customer contracts clearly stated that refunds were not granted under certain circumstances, such as when companies ceased operations. He also mentioned that customers often resorted to posting negative reviews in an attempt to pressure the company into providing refunds. Ryan argued that Newchip did provide refunds, amounting to approximately $150,000 per month, but acknowledged that the low-level marketing personnel tasked with managing positive reviews often failed to do so effectively.
The group of disgruntled former employees raised concerns about mismanagement dating back several years. They accused Ryan of clawing back sales commissions and rewarding himself with bonuses during financial deficits. Ryan confirmed that some contracts remained unsigned, resulting in the removal of sales commissions. He clarified that approximately 200 to 300 contracts, worth around $1 million, were not signed due to instances of non-compliance within the admissions team. As a response, Ryan temporarily assumed the role of head of sales until a replacement was found.
Regarding his compensation, Ryan clarified that he did not receive a salary over $75,000 until 2020. He mentioned that his income for that year amounted to $92,000, followed by $175,000 in 2021 and $287,000 in 2022. He added that a significant portion of these amounts consisted of performance-based bonuses.
As the situation unfolded, the fate of the entrepreneurs participating in Newchip’s program, the remaining employees, and the company itself remained uncertain. The group of former employees expressed their intention to reach out to other accelerators and the startup ecosystem in an effort to assist the affected founders during the liquidation process. Ryan stated that he was actively seeking a “white knight” investor to support the company and take over its programs.
In conclusion, Newchip’s journey from a promising online accelerator to bankruptcy and insolvency has been marred by employee and client discontent, allegations of mismanagement, unfulfilled promises, and financial difficulties. The fallout from this situation serves as a cautionary tale for startups and entrepreneurs about the importance of thorough due diligence and careful consideration when selecting accelerator programs.