Posted: June 01, 2014
Creative finance vs traditional venture capital
Need a loan? Small businesses have more options in 2014Eric Peterson
Of about 15 venture funds in 2001, only two remained active in 2007, said Zell: Foundry Group in Boulder and Westminster's Access Venture Partners.
Since Zell started deal-making in Colorado that year, Virginia-based Grotech has closed on 12 Series A and B investments in the state, with a 13th on track to close this spring. “We're one of the most active investors in Colorado,” he says
Describing an overall upswing, Zell also highlights a critical gap in the Colorado VC world. “At the seed level, there are a lot of good opportunities,” he notes. And companies seeking B and C rounds are usually looking at a broader VC market. “Once a company is at $3 million to $4 million in revenue, we'll have good support from national firms.”
But for startups looking for Series A financing, Colorado is definitely lacking. “Most investors want it to be local,” Zell says.
He adds confidently, though, that things could change quickly, noting roughly 30 opportunities with Colorado startups in 2013. “If there are 60 great companies, the money will come here.”
Not that VC is a match for every startup. “Of all businesses that get started, only about 20 percent fit the venture model,” Zell says. Venture capitalists are looking for companies in high-growth industries where the annual growth rate could hit 50 percent or even triple digits, he explains. Startups in flatter sectors need not apply. While 20 percent growth is nice, it's not enough to justify a VC investment.
Until recently, “Denver/Boulder wasn't a destination for coastal capital sources,” says Chris Onan, a managing director with Denver's Galvanize. “Colorado has always been an importer of venture capital and will continue to be.”
Regardless, Onan says he's seen good signs of growth in the last few years. “The real catalyst was David Cohen, Brad Feld and Jared Polis starting TechStars.”
Exit activity is critical, and lacking in Colorado, adds Onan. “Utah is a great tech market, with unbelievable exits. That's when you really start to see that flywheel. We need to put a couple of those on the board.”
He looks at Zayo Group, Rally Software, Ping Identity and LogRhythm as local companies that could fit the bill.
“I think it's coming,” says Onan. “We've got tons of energy on the early-stage side. We just need to put a couple of runs on the board.”
Denver-based writer Eric Peterson is the author of Frommer's Colorado, Frommer's Montana & Wyoming, Frommer's Yellowstone & Grand Teton National Parks and the Ramble series of guidebooks, featuring first-person travelogues covering everything from atomic landmarks in New Mexico to celebrity gone wrong in Hollywood. Peterson has also recently written about backpacking in Yosemite, cross-country skiing in Yellowstone and downhill skiing in Colorado for such publications as Denver's Westword and The New York Daily News. He can be reached at Eptcb126@msn.com