I was there near the beginning of Newchip, before the start of the accelerator program, and through 2020. From my time at Newchip here is what I remember.
A little background on Ryan. Andrew Ryan's real name is Ryan Rafols. From statements he made at the time, he changed it because he had such a bad reputation with investors, and had been caught in so many misrepresentations, that he couldn't get investor meetings anymore, So, Andrew Ryan was born.
From my experience, almost nothing Ryan tells you is true. He tells people he meets that he's in his late 20's, but a quick look at his LinkedIn and a tally of his work experience will quickly disabuse you of accepting that as true. He says he has had 3 exits (maybe he says it's more now), he hasn't. The truth is, he had a small company with his ex wife, which did about $150k in lifetime rev selling used college textbooks. He sold that company to someone for about $35k (from my memory, but that figure could be off) , and that's his one and only, big exit.
Ryan tells people he's a "rocket scientist", not an aerospace engineer or something similar, a rocket scientist. That's why you see rockets all over the Newchip website and marketing materials, as well as for Astra Labs. From my research while working there, and from Ryan himself, the closest he got to a rocket was watching a radar screen while he was in the military.
He has publicly stated he worked in TX politics, worked at UT Austin in the Nuclear Physics department (he leaves it open, but the presumption is that he worked there as a physicist), and taught English to children in China. While there was evidence he worked for the TX state government, neither myself, nor anyone who worked at Newchip during my time there was ever able to find any evidence for the rest of the above. Anecdotally, Ryan also said he invented the very popular video game DOTA, but it was stolen from him.
A brief background on Newchip. The company started as a Reg CF deal aggregator for the various Reg CF sites, like WeFundr. However, when that didn't work, and the runway was almost gone, they pivoted to an accelerator. At that time the company was less than 20 people.
The accelerator started off well. At the beginning the course was 3 months and $500ish. The curriculum was commensurate with the tuition, and there was a lot of individual attention. There was 1:1 coaching for the founders, bi-weekly group classes and masterminds, lectures, pitch deck coaching, marketing assistance, and a Demo Day for founders to connect with investors. After the fist cohort Ryan raised the tuition, and it went up by about $500-1000 every 3 months after that.
For large portions of 2019 the company struggled and the staff went unpaid. The stated reason was that there were many creditors and vendors that were owed large sums of money, making it difficult to keep everything going, and payroll was hit or miss. Accountants, lawyers, video production staff, software vendors, marketing firms, and advertisers, Newchip seemingly owed money to everyone. At the time, Newchip was around $500k in debt, if you add it all together.
Around mid 2019 Travis, the cofounder, left, then sold his shares of the the company back to Ryan for around $10k. About 3 months later Travis ended up back at the NewChip as an employee, coaching founders.
Ryan fired the board around mid 2019 as well. Nihar Patel, who had been an intern at the company less than a year earlier, put some money into the company, and was named the new cofounder. While he had no experience in venture capital, he was #2 at Newchip and put in charge of all venture related functions (which he has now removed from his LinkedIn profile). Nihar facilitated Ryan's directives, finding creative ways to achieve whatever Ryan wanted to achieve. Nihar came up with the warrant structure, suggested the creation of Astra Labs, and also Journey Venture Partners, another venture fund which was abandoned after Ryan couldn't find finding for it. Nihar frequently talked about wanting to find a way into VC professionally, so I guess he took his chance when it was presented.
To the best of my understanding this is the way that Ryan and Nihar managed Newchip. The venture fund would raise money, then, in exchange for a warrant, the venture fund would pay the founder's tuition fee in the accelerator. This funded the accelerator's operations. The venture fund would add the warrant to its portfolio and assign it a value, thus making the venture fund look successful. Then the venture fund would go out and look for more investors based on the portfolio's value. Newchip is able to show it's worth $50-250MM because Newchip assigned the portfolio's value. Newchip would also get to take a loss on their taxes because they were selling every program a discount against the listed value of the course (they'd charge the student $4k saying they got a scholarship discount, but list the value of the program at $10-30k for tax purposes, generating a $6-24k loss against earnings).
Once the accelerator was running and Newchip started generating revenue, Ryan couldn't seem to spend the money fast enough. Because of his overspending, eventually Ryan was put on a budget by Josh, one of the investors, so that the company could pay down its debts. That didn't seem to stop Ryan though. He would buy office furniture, and then replace it with other, new furniture. He stocked the staff kitchen with tens of thousands of dollars worth of food no one ate, which was discarded. He bought unnecessary office supplies that went unused. On one occasion he bought $12k worth of coffee for an office that had 12 people working in it. The joke in the office was that Newchip should start a new business selling the hundreds of dry erase markers they had, maybe then they could make payroll. Ryans stated reasoning for these purchases was, "I'm a CEO, and CEOs spend money."
Somewhere in mid 2019 there was a break in faith between leadership and the staff. The staff found out that there were never any investors at the Demo Days, and no one was doing investor outreach to get any. All of the things the staff had been representing to the students were false. To mask the lack of investor attendance, Ryan tasked the staff with logging into the chat during the founder demos, pretending they were investors that had been brought there by Newchip, and asking the founders questions to give the impression of investor interest. Ryan told members of the staff to send the founders participating in the Demo Days emails from fictitious email accounts, and pretend to be potential investors. If any of the founders complained the staff was instructed to just ignore them, or tell them their ideas and/or companies weren't good enough for investment. After the blatant misrepresentation came to light the culture of the company changed. Everyone knew it was a scam and leadership abandoned the pretense that the mission was about the doing something for the founders. Any of the leadership who was still there after 2019 was not ignorant of what Newchip was, or what it did. They all knew, and the continued anyway.
Morale dropped through the floor. Sales commissions were often unpaid, and the unpaid sales people would quit, to be replaced with new and inexperienced sales staff, which would also soon quit when their commissions went unpaid. Thus the cycle would repeat itself over and over. There was frequent employee talk about Ryan being a con artist, and Newchip being a scam. Many non sales employees started looking for other positions. After someone would leave the company Ryan would invariably replace them with someone under 25 that had no business experience. Likely in the hopes they wouldn't be able to see what was going on and call attention to it.
Newchip moved into new offices around mid 2019, and then moved again about a year later. Most of the ethical people had left Newchip by the end of 2019.
Newchip did a crowd funding raise in early 2020. To make the funding goal Ryan sent videos to potential investors, talking about the crowd funding raise, showing off the new office and talking about how they were right next to Tesla to build the image of Newchip as a successful company. He talked about the projected value of the company, who had invested, and where Newchip was going to be in 5 years. All of which is illegal under Reg CF laws and regulations, which are ironically in Newchip's curriculum. However, the SEC was never notified, and neither Ryan, nor Newchip was ever investigated.
From there it was just more downhill. Armando Vera Carvajal was named Accelerator Director, and put in charge of the accelerator. Armando had been there since mid 2019 and knew about what was happening, but turned a blind eye. He would interface with the Newchip investors and mentors, and seemed to try to keep anyone from asking too many questions. Armando was made a cofounder, and eventually put in charge of product.
Because people would come into the company, and either see what was going on, or get "adjusted" out of their commissions, sales staff would usually turn over within 90 days. So, Ryan began hiring more and more people to do sales, in the hopes that enough would remain that he could continue doing business. At one point Ryan was spending over $60k per month with a reputation firm to reduce the negative reviews from customers and staff, but you can see some of them in places like Glassdoor.
In my opinion, Newchip was a disaster, let by people that didn't know what they were doing, or worse, knew and were doing it anyway. There was very little ethical consideration given to their actions, and even less regard given to the impact those actions would have. Founders that came to Newchip often didn't have much money, and at every stage they were lied to, manipulated, and outright conned into participating in the program with illusions of getting an investment from investors that didn't exist. All of the leadership that facilitated this travesty have now left Newchip and on to their next startups, undoubtedly still engaging in the same types of behavior. Ryan Rafols, aka Andrew Ryan, will likely not face any repercussions for the lost investor funds, or the people that Newchip took advantage of. The company will just dissolve and people will forget.
