Newchip Accelerator Bankruptcy: An Inside Look at Andrew Ryan’s Vision & The Failure of ASTRALABS
In the ever-evolving world of startups, it’s not uncommon for disagreements and misunderstandings to surface within the industry. Recent discussions about the business model, financial operations, and the potential Chapter 7 liquidation of Newchip and its parent company, ASTRALABS, have created a buzz in the entrepreneurial ecosystem. Andrew Ryan, the visionary behind these entities, shares his thoughts on the situation and provides an in-depth explanation of their unique business model.
“Diversity of opinion within our startup and investor community is a testament to our vibrancy and commitment to innovation. When we stop asking questions as individuals and society about how to make the world better or whether a system adds value, that’s when innovation dies,” Ryan says, expressing his appreciation for the different viewpoints within his community, even the criticisms.
A Deep Dive into the Business Model
Andrew Ryan’s Newchip operated under a coalition or community model, much like a gym or a co-op. Members paid a nominal fee for access to a broad array of resources far exceeding the cost of membership. Ryan explains, “We launched our first cohort, charging a nominal $300 tuition for the program, which was subsidized by investor capital.”
However, he admits that finding a profitable balance was an uphill task as the company subsidized all its programs with investor capital for years. The idea was to make the programs affordable for founders at every stage and employ a price-to-traction matrix to do so. Ryan points out that the company absorbed losses and wrote off millions to support the startups.
“We’re not the in-crowd. We were the rebels that sought to change the landscape by democratizing access for everyone,” Ryan says, emphasizing Newchip and ASTRALABS’ commitment to supporting innovators, even when it cost them heavily.
The Vision for ASTRALABS
ASTRALABS was designed as a vertically aligned suite of products and funding resources to assist founders from the inception of their idea through to their exit. Newchip Accelerator, despite being the loss leader in this portfolio, was designed to foster long-term partnerships and create synergy within the ecosystem.
Ryan shares, “Newchip’s business model was never to be hyper profitable. It has consistently lost money every year. Our revenue model was based on the long-term potential returns from our warrants and investments into other product verticals for LTV, not cash revenue from our accelerator tuition.”
The Struggle for Balance
Andrew Ryan acknowledges the company’s struggles to strike a balance between managing a fund and providing intensive support to founders within an accelerator setting. As the needs of their founders grew, their team often found themselves drawn into coaching and assisting founders with their fundraises.
Ryan reflects, “We learned the critical importance of a clear demarcation between capital management and founder support.” Despite these challenges, he reiterates his commitment to the startups, stating, “You have my promise that I will not rest until there is a solution to either support our founders through either program continuity via us, an acquirer, or a process for program tuition refunds even if it cost me my ownership stake.”
Weathering the Storm
Facing recent allegations, Andrew Ryan, Newchip, and ASTRALABS stand steadfast. Ryan reassures his community, “I just want to be transparent on what we’ve been up against as a team. I also want to address and thank the supporters that found success in our accelerator programs. The many hundreds of you around the globe have given me strength in this crisis.”
His message is a call to action, encouraging all stakeholders to stand by Newchip and ASTRALABS as they navigate through this rough patch. Despite the turmoil, Ryan remains hopeful, ready to fight, and committed to the journey of innovation and entrepreneurship.
The “Warrant” Strategy
Newchip and ASTRALABS employed a unique revenue strategy. Andrew Ryan explains, “Our revenue strategy, if not centered on cash, had to be centered around something else. This focus was our Warrants. Warrant instruments typically accompany an investment and offer the investor an opportunity to reinvest later at a favorable price, however ours were in-kind as part of admission.”
Instead of adopting the prevalent “10 for 20” model often seen in small, local accelerators and incubators, where it’s 10–20% equity for a $20k-$50k investment or even equity just for office space and mentor hours, Ryan opted for a different approach. His intention was to experiment with an 18-month option “bet” with the founders, offering them the chance to invest in companies with great potential.
“We truly believed a low tuition model to cover the cost of delivery along with a Warrant would align both parties to a startup’s success long-term and incentivize excellence from both our accelerator team and the startup,” he adds.
Reflections and Learnings
Despite their best efforts, Andrew Ryan admits, “we were able to invest in multiple startups per year, though not as many as we initially hoped for.” However, the goal of supporting startups never wavered, even when it meant transforming from a fund manager to a venture hospital, treating startups and the ills that come from various stages of growth.
Ryan says, “This experience encapsulated for me the complexities of managing a fund while also providing intensive support to founders within an accelerator setting.” This has resulted in valuable learnings about the balance between capital management and founder support.
Despite the criticisms and looming uncertainties, Andrew Ryan, Newchip, and ASTRALABS continue to stand by their mission of democratizing access for startups and fostering an environment of innovation and growth. In Ryan’s own words, “We may not win this fight, but I am grateful for the countless voices of support I’ve heard, and I equally appreciate those expressing criticism as well. Each perspective brings valuable insight as we navigate this period and seek to continue to evolve the incubator and accelerator models in our startup communities/ecosystems.”
