Austin-based startup accelerator Newchip announced May 12 it is shutting down.
"It's with a heavy heart that I announce the closure of Newchip today,” founder and CEO Andrew Ryan posted to LinkedIn, along with a lengthy explanation.
The company, legally known as AstraLabs Inc., has been dealing with a Chapter 11 bankruptcy business reorganization case that started on March 17. On May 12, a bankruptcy judge ordered the case to be converted into a Chapter 7 business liquidation. A meeting of creditors has been set for June 16.
The Austin-based company was founded in 2016 by Ryan, Nihar Patel and Travis Brodeen and has operated a virtual incubator and accelerator to help early-stage founders grow their businesses.
Newchip raised $7.9 million across several rounds of venture funding, including a $250,000 round in February this year, according to Crunchbase.
Despite its history of connecting entrepreneurs with startup capital — Newchip's website boasts that it works with investors at Elevate Capital, DreamIt and others — the accelerator's finances have fallen into disarray, according to a May 10 motion from Shane Tobin on behalf of Eric Terry, the U.S. trustee assigned to the case. The document states the company doesn’t have enough money on hand to cover its next payroll on May 15 or its other expenses.
For example, a March 2023 operating budget submitted to the court showed Newchip started the month with an opening balance of about $241,700 for all accounts. After disbursements, it showed a net cashflow of negative $122,900, court filings show.
Newchip's attorney, Chip Lane, and Trustee Eric Terry couldn't immediately be reached on Friday.
The trustee's filing also said that Newchip landed financing to pay a prior payroll and repaid it without notifying the court, which could hurt the positions of creditors.
Tobin's filing says Newchip “also has significant assets, specifically warrants that were offered as payments for services and stock in at least one company, which management is aware of and deliberately not disclosing on the bankruptcy schedules."
Meanwhile, more than 60 of its 100 employees have quit in the past week, a court filing stated.
Many of the employees who quit have posted nearly identical messages to LinkedIn announcing their departures. But some provided a bit more insight into individual decisions.
“While the mission and people I worked with were absolutely amazing, I no longer felt that the company was being led with ethical and transparent intentions for the start up founders we supported,” a revenue operations employee wrote. “As a result, I, along with many other amazing individuals, made the difficult decision to resign on Thursday.”
The portfolio overview on Newchip's website says it has worked with more than 2,500 companies globally, and that those companies have collectively raised more than $2.25 billion in funding. The most recent cohort announced by Newchip was in October last year, although several startups announced they joined the accelerator in February this year. Newchip also says it has a fund called Journey Venture Partners, although its website only says "coming soon."
In an online post, Ryan said Newchip initially filed for subchapter 5 bankruptcy to restructure its venture debts ahead of a potential recession.
“This was done with the intention of emerging stronger and more resilient after the financial downturn,” he wrote. “We were not prepared for the restrictions that came with this process, nor the societal confusion about what a bankruptcy protection 're-organization' is vs. bankruptcy 'liquidation' between our startups, our communities, and investors.
“Regrettably, a few former employees saw an opportunity to exploit this situation and initiated a hostile takeover attempt. When their efforts failed, they then resorted to manipulating the court system in order to force the company into liquidation.”
Ryan wrote that he and the company's investors will try to appeal the court's decision.
"In the event that the appeal is unsuccessful, we are seeking investors who may be willing to acquire the debts of around ~$4M or take over in a buyout from the trustee to drive continuity and new leadership - as we own that we fought, but we failed," he wrote.
Ryan’s post also hinted at additional financial troubles that extend beyond the company itself.
“Unfortunately, the current circumstances have left many of us facing personal bankruptcies now, but despite this hardship, our commitment to our shared vision remains steadfast and we will do everything we can to support our founders,” he wrote.
