Critical Overview: Newchip Liquidates Under $4.8 Million in Debt
Newchip Accelerator, a startup creator in Austin, Texas, rebranded as Astralabs, declared Chapter 11 bankruptcy, due to accruing some $4.8 million in debt, reportedly exceeding its $1.7 million in assets. As a loan and alternative-funding organizer for startups, the company signed up over a dozen investors to raise $7.9 million, while stating a loss of $748,999 in 2017, $197,884 in 2016, and $4.5 million in tax loss carryforwards in 2020.
Unsecured creditors, such as Iruka Capital, Apex Funding, and Clear Finance Technology, list themselves among Newchip’s top creditors to provide merchant cash advances for a percentage of company earnings. In addition, the it received over $776,000 in COVID-19 relief funds, with a $500,000 loan from the U.S. SBA, while the Paycheck Protection Program funded some $276,389 in grants.
However, Silicon Hills News reported multiple business owners claiming that they did not receive program promises from Newchip. A California-based startup Acciyo received an email guaranteeing investment, which they received, but no follow-up or bonus, suggesting a careless onboarding process. Meanwhile, Kemppinen from SoulBotix, based in Australia, claimed his was ‘left alone to navigate a sea of content without any help’ and did not receive investor contacts.
However, co-founder Angela DiMarco from Uniquely Phenom Collaborations in New York reported high satisfaction with education and training received, feeling empowered after attending the accelerator course.
Former employees divulge accusations of workplace harassment and a hostile environment as well.
Executive Summary: Newchip Failure Signals Need for Tighter Regulations and Enforcement
The negative impacts surrounding Newchip’s bankruptcy reinforce the necessity of more scrutinized and transparent funding and financing, especially for small businesses. It is all too easy for startups to be utilized as mere cash cows without receiving appropriate value and support. It is the responsibility of funding organizations to ensure that they are not creating a system that preys on the gullibility of business owners. Furthermore, the existence of practices such as Newchip’s emphasizes that providing accurate representation in connection with business finance and funding remains an area lacking in government regulatory enforcement. The need for ethical financial practices is urgent.
