Plans for a Melbourne outpost of the US startup accelerator 500 Startups are in tatters after LaunchVic, the state government’s startup funding body, ended its $2 million deal to launch locally.

The announcement follows the resignation of 500 Melbourne managing director Rachael Neumann just weeks into her new role.

The former Eventbrite Australia managing director said she decided to step down having just returned from Silicon Valley, where she was trying to “find the right way forward” for 500 Melbourne, but came to the conclusion that “this is simply not the right time for 500 to launch in Australia”.

Neumann said she still hopes to contribute to the start-up community in another way.

“I still believe that there is a gap in the local ecosystem that needs to be addressed in order to get Australian start-ups access to other global communities and best practices,” she said.

The organisation has been in damage control following an investigation into claims of sexual harassment, against founder Dave McClure. He resigned as CEO and general partner in early July just a fortnight after visiting Melbourne for the local launch. McClure subsequently apologised saying he probably deserves “to be called a creep” for “selfishly” taking advantage of situations with women.

LaunchVic was still backing the 500 Melbourne last month, but delayed the roll out of its programs to “enable time for 500 Startups to rebuild the trust of the Australian community”, as pressure grew for the government body to withdraw its $2 million in support.

The loss of Neumann was enough for LaunchVic CEO Dr Kate Cornick to pull the pin.

“We’re disappointed at how this has ended,” she said

“Unfortunately, as we’ve expressed to 500 Startups, without Rachael Neumann at the helm we don’t believe it will work.”

Dr Cornick said the contractual arrangements meant that no public funds were at risk and LaunchVic retains the money it had allocated to the project.

Last week, the Canadian arm of 500 Startups has its funding suspended after investors expressed concerns that McClure would be involved.

500 Canada had managed to get $US25 million in imminent funding commitments from local institutional LPs (Limited Partnerships), but the funding was conditional on McClure not receiving any profit from the fund.

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