Since the day when the Austin-based Newchip accelerator approached me on LinkedIn, I couldn’t get rid of that uneasy feeling. Something wasn’t right, my instincts warned me. We declined their offer to join the program.
Still, the news about its bankruptcy came as a shock. In particular because Newchip tried to enroll us – and thousands of other entrepreneurs – in their expensive acceleration program when, apparently, they had already run out of funds.
The accelerator’s executives have been accused of fraud and even sexual harassment. One report claimed Andrew Ryan, accelerator’s CEO and founder, was armed and threatening himself and the employees — though he dismissed these accusations as false in a letter.
You can call it “entrepreneur’s intuition”, but my eventual decision to avoid the failed accelerator’s program was based on more than that. I’m happy to share what led me to make a choice that saved my company $9K in fees.
Raising investment in SexTech
We are currently raising a new round, which isn’t easy considering we are in SexTech. Most VCs prefer to stay away from sexual health and wellness.
Investors suffer the malady that Cindy Gallop, our industry icon and the founder of MakeLoveNotPorn, calls “the fear of what other people think.” It took her about 10 years to raise $3 million for her social SexTech platform. Although the global industry is worth approximately $35 billion, SexTech startups struggle with finding investment.
Newchip’s venture analyst approached me on LinkedIn, with a promise of introductions to investors. We decided to hear them out, although I saw very little value in the program after looking at their curriculum and other founders’ reviews.
Newchip accelerator scam alarm
On paper, everything seemed great. Newchip had been active for more than 6 years, had tons of great press and said they had helped 5,000 early stage startups that graduated their program. Also, their business model was based on fees rather than equity, something that appealed to us. However, too many things bothered me.
First of all, I never heard of an accelerator recruiting founders via LinkedIn. Established accelerators, such as Y Combinator or 500 Startups, don’t do that. It looked like they randomly message thousands of founders, trying to boost their sales.
Secondly, the team was very young, in their 20s, and it seemed they didn’t know our industry. When I shared the obstacles that SexTech companies are facing, it came to them as a surprise. I wondered why they even approached us if they didn’t have any insights into our market.
Finally, they didn’t seem incredibly busy. A call with the Newchip venture associate lasted around 30 minutes, and it seemed like he was happy to chat longer and was very flexible. The accelerator didn’t do any due diligence and basically we were already accepted after the first conversation.
I decided to check the reviews. They had a lot of good ones but, when I started reading bad reviews, it was alarming. People hadn’t been getting any exposure to the pool of investors that Newchip had promised and were questioning why it was so easy to join in the first place.
We quickly realized that Newchip’s business model was also a deception. Apart from the $9K fee for the program, they wanted the option to be involved in our second round and have the same deal as investors.
VCs are turning away startups that give away too much equity in the early stages. That really worried me, so we decided to decline in order to prioritize investor interests. I discussed the Newchip offer with our advisors, and we all were on the same page.
I sent an email to Newchip on Monday, saying we don’t plan to join. A few days later, news broke about the bankruptcy. Now I am absolutely sure that the accelerator’s team was aware of the situation. It’s crazy that they kept recruiting startups.
Newchip is not the only deceitful accelerator out there. Many programs don’t make any sense. As an early stage founder you should be extra cautious, read reviews, talk to people personally, and ask your advisors.
Make sure you don’t give too much equity at the very start and that the accelerator delivers on its promises. While immigrant entrepreneurs might not know the U.S. equity and tax system, there are a lot of books and a community to help you. Just trust your gut.
About Bjorn Erik Hansen
Norway-born Bjorn Erik Hansen is the founder and CEO at INTIEM, a Miami-based startup that uses AI to enhance sexual wellness. The solution integrates virtual sex therapy with psychedelics, cannabis and a realistic VR experience. Hansen is an accomplished entrepreneur with a background in both pharmaceuticals and electrical engineering. He is on a mission to help individuals overcome sexual challenges, recover from trauma, or simply maximize their sensual pleasure.