Newchip: The Rise and Fall of an Austin Startup Titan

Newchip, an Austin-based company known for its innovative work in the startup sphere, has sadly found itself facing insolvency, sparking a wave of distress across the business community.

Now operating under the banner of Astralabs, Newchip and its associated Newchip Accelerator service submitted a Chapter 11 bankruptcy reorganization proposal on March 17th. Its submission revealed $1.7 million in total assets weighed against $4.8 million in total liabilities. However, only last week, the bankruptcy judge converted the case to Chapter 7 liquidation, as unveiled by a public letter from its CEO and co-founder, Andrew Ryan.

In a somber announcement, Ryan acknowledged the unfortunate series of events that had led to Newchip’s demise. He revealed, “our company Newchip Accelerator after 6 + years of supporting startups globally, has faced a series of unfortunate events which have significantly impacted our operations.”

Detailed in the bankruptcy files are the company’s top unsecured creditors, including Apex Funding Source, Clear Finance Technology Corp., and Iruka Capital. These creditors are owed substantial sums under the guise of “merchant cash advances,” a funding alternative for small businesses where the borrower pays interest upfront and the lender recoups a percentage of the company’s future revenue until the debt is paid.

Newchip also accepted more than $776,000 in taxpayer funds as part of COVID-19 relief initiatives. Therefore, the U.S. Small Business Administration is included as a top 10 unsecured creditor with a claim of $500,000 for a COVID-19 Economic Injury Disaster Loan. In addition, Newchip was granted two Paycheck Protection Program loans, both of which have since been absolved.

While Newchip raised $7.9 million from accredited and nonaccredited investors, Crunchbase data reveals a troubling history of financial losses. SEC filings show a net loss of $197,884 for 2016, a $748,999 loss in 2017, and the company claimed $4.5 million in tax loss carryforwards in its 2020 financial statements.

Beyond these financial woes, Newchip has faced criticism from participants in its accelerator program. Multiple startup founders have accused the company of failing to deliver on its promises, while others have praised the educational aspect of the program, likening it to an affordable MBA. However, concerns over lost financial opportunities and lack of investor introductions have caused significant discontent.

Further controversies have arisen around the company’s marketing practices, with allegations of unsolicited emails being sent to recruit startups for its paid program. Ahmed Zobi, CEO and founder of Syntr Health Technologies, detailed his experiences with Newchip’s program, highlighting questionable contract terms and a lack of mentorship support.

Newchip, which began its journey in 2016 as an aggregator of top deals from various equity-based crowdfunding platforms, now finds itself embroiled in mounting allegations and dissatisfaction, including claims of harassment within the workplace.

The company’s journey from a promising startup, once dubbed the “kayak of funding,” to its current plight underlines the challenging and unpredictable nature of the startup landscape. Despite its unfortunate downfall, the story of Newchip serves as a stark reminder of the realities of the business world, where innovation and ambition sometimes collide with the hard truths of financial sustainability.