Natty Zola remembers pitching potential investors back in 2009 on his first startup, a digital travel-journal company in Boulder. He found one — in Boise, Idaho.

Back then, the Denver-metro area’s reputation for entrepreneurship was just emerging. Boulder tech accelerator Techstars was in its third year of cohorts. Prominent Boulder venture capitalist Brad Feld had started Foundry Group two years earlier. And Denver Startup Week wouldn’t start for two more. Area entrepreneurs had trouble finding early funding. Zola was grateful to find seed investment to grow his company.

“I raised my seed round in 2009, and it was like $250,000,” said Zola, who sold that startup, Everlater, to MapQuest and now heads up the Boulder operation of Techstars. “Nowadays, that’s just laughable.”

These days, more local startups are raising $1 million or more in their early seed rounds. Out-of-state venture capitalists are making regular visits to Colorado. And there are more venture funds based in the region than ever before.

Even with concerns of a recession, dour outlooks for flailing tech unicorns and a decline in venture investments, more than $1 billion in capital has so far been invested in Colorado companies, according to PriceWaterhouseCoopers.

“There’s more capital than ever right now,” said Zola, also a partner at Matchstick Ventures, which just closed on a $30 million fund targeting early-stage companies. “And the round sizes are a little bit bigger than they have been historically.

“We’re proving that you can build great companies so there’s way more appetite from coastal or non-Colorado capital to invest here, which is great,” he said.

The entrepreneurial activity helped Melanie Fellay and Zari Zahra decide to move their startup, Spekit, to Denver from San Francisco last year. There were other reasons, of course, including the quest for a more balanced life and lower-priced housing and the fact that Fellay graduated from the University of Colorado.

“People here care more about you than the company. I wanted to attract people who also thought that way,” said Fellay, whose company developed a custom digital-training platform linked to Salesforce so workers can skip lengthy training manuals. “And looking at the financials as well, for the cost, we can build out a team (better) in Denver.”

Melanie Fellay and Zari Zahra, cofounders of Spekit in Denver, raised $2.5 million in venture capital in Oct. 2019. It was the company’s first seed round. (Provided by Spekit)

When the duo set about raising capital this summer, their experience was nothing like it would have been five to 10 years ago. Coastal VCs didn’t demand Spekit move to California to be closer to venture capital headquarters. It didn’t matter that they were female founders. And there was enough interest that Spekit updated its plan and raised more money than it set out to do. On Oct. 1, Spekit announced its $2.4 million round, led by Southern California’s Bonfire Ventures and Matchstick Ventures.

“We were lucky to find several really great institutional investors that we knew we could benefit from beyond just the financial investment, so we decided to expand the raise,” Fellay said. Spekit now employs 13 and continues to expand.

Why there’s more money in Colorado

Venture investors say there’s a lot of money still floating around looking for a place to land. In Colorado and nationwide, venture funding is down from 2018, a record year since the dot-com bubble burst in 2000. But in this year’s first nine months, venture investors poured $83 billion into U.S. companies, according to PWC.

And while nine-digit funding rounds that have created instant tech unicorns are rare in Colorado, they’re not unheard of. In August, Denver’s Ibotta, which had already raised $85 million, said its latest round gave the retail rewards app a $1 billion valuation. It declined to say the amount of its latest raise.

Other local companies continue to attract millions as well. Techstars added $42 million in July, bringing its haul to $103.8 million, according to fund tracker Crunchbase. Coworking space and tech educator Galvanize is finalizing a $15 million raise from existing investors, many of whom already have contributed to its more than $100 million in venture funding, according to the company. Guild Education, the education-as-a-perk company with $71 million raised, added an undisclosed amount from Stephen Curry of the Golden State Warriors two weeks ago. On Tuesday, online interior-design service Havenly added $32 million to bring its total to $59 million, according to the company.

“There are still some challenges, but money is flowing more than it was one to two years ago,” said Greg Greenwood, CEO and executive director of Blackstone Entrepreneurs Network, a nonprofit that matches mentors with fast-growing startups. “We’re getting a lot of referrals. It’s people wanting to find their way into the deal flow in Colorado. There’s more wealth in town, too. Think about the SendGrid exit, and Zayo and Datalogix. I’m seeing people from all those companies becoming investors.”

Many credit the support system that has been a decade in the making to mentor and steer entrepreneurs into companies with multimillion-dollar valuations. Private groups came together, such as Blackstone, Techstars and Boomtown. There has also been government support, from the city of Denver and the state to promote and financially support the startup ecosystem.

Attracted by the activity, many larger coastal firms such as Slack, Facebook and Salesforce have opened tech hubs in Denver. According to a report from Cushman & Wakefield, 58 of 89 companies headquartered in the Bay Area have opened an office in the Denver region in recent years.

“I feel like we’re entering a new stage of venture capital and innovation success here in Colorado,” said Ryan Kirkpatrick, a partner at the Colorado Impact Fund. “There are all kinds of factors that have really built the infrastructure to allow innovation and entrepreneurship that we’ve seen over the last five years. That, I think, will ultimately lead to a step change in the amount of venture capital that’s invested here, and the number of deals that get done.”

Kirkpatrick ticked off a list of venture firms that have popped up to find gems in the state’s startup community. There’s Greater Colorado Venture Fund, which focuses on areas outside of the Front Range, and First Mile Ventures in Colorado Springs. There are also Denver-area Blue Note Ventures and GAN Ventures, as well as Middle America firms, such as Firebrand Ventures, that are interested in Colorado firms.

“There’s an incredible number of options now for entrepreneurs that have recently formed their business,” Kirkpatrick said. “That historically has been a really difficult and painful capital gap here in Colorado. There were a lot of really good ideas that never got to early stage because they couldn’t find the investors to pull together a half-million round.”

Sean Jacobsohn, a partner at Norwest Venture Partners in Silicon Valley, got his first taste of investing in Colorado with Rallyteam, a talent-management software company headquartered in both San Francisco and Boulder. Workday acquired Rallyteam last year.

“If you noticed, there’s a lot of companies in the Bay Area and elsewhere that have built second offices in Denver and the Boulder area because they want to get access to the great talent that you have there,” Jacobsohn said. “For me, I’m paying attention to Austin, Seattle, L.A. and Denver/Boulder. You’ve got access to great talent that want to live there, that have seen other successful companies in those markets and that aspire to build something big. And so I am making a regular point of going to those four places in person.”

New attention is also due to the success of venture-backed companies getting their exit through a public offering or acquisition. Multifactor authentication firm Ping Identity went public last month, while publicly traded email-services firm SendGrid was acquired by Twilio this year.

“You’ve had more exits in these spaces,” Jacobsohn said. “It’s hard when entrepreneurs in a certain location have not seen successful outcomes.”

The rise of the angels

What Colorado hasn’t seen much of are the megarounds of $100 million in funding or more. But there has been a noticeable uptick in the size of the amount of early-stage funding by angel and seed investors. Where seed rounds once hovered around $250,000, now there are more pushing past $1 million.

Rockies Venture Club, which focuses on early-stage companies, has seen a dramatic increase in pretty much everything over the past five years — from the number of startups asking for money to the growth in active angel investors and the size of investment.

“Historically, we receive about 1,000 applications a year for funding,” said Dave Harris, RVC’s director of operations. “And then we’ve seen that tick up over the last two years to closer to 1,500. … What we’re finding is that there are more companies getting started. And there’s more founders out there thinking they need to go out and raise capital right away, which might not be the first step they should be taking. But we’re seeing that the demand is really kind of growing.”

Angel investors and other audience members listen to founders make their pitch during Rockies Venture Club Hyper Accelerator event held July 2019. More angel investors are putting their money in local startups and are working together or with out-of-state venture capitalists to help companies grow faster. (Provided by Rockies Venture Club)

RVC is also investing in about 25 to 30 companies a year, up from a half dozen five years ago. Active investors now number 215, compared with 150 in the past. And RVC is working on expanding its network since its data shows there are 60,000 accredited investors in Colorado and only 3,000 are active. (An accredited investor must earn $200,000 to $300,000 a year and have a net worth more than $1 million, according to the Securities and Exchange Commission.)

“There’s a big delta there where we can not only get these folks to invest but get them to really engage more and help some of these early-stage entrepreneurs grow their businesses,” Harris said. “One of the things I really love about this community is it’s collaborative by nature. We’re seeing that on the capital side because it’s critical that we’re all working together to fund the local entrepreneurs so that they don’t necessarily have to go out (of Colorado) and raise from the coast. But we don’t really have enough capital to meet demand.”

Entrepreneurs still go out of state to get a funding deal done. Denver-based Soona, which is building a same-day photo/video production store for customers who need a video fast, recently raised $1.2 million from New York’s 2048 Ventures and a number of area firms, including MergeLane, Lavawalk Ventures, Matchstick and Techstars Ventures.

“Denver really opened my eyes to what was possible,” said Soona’s founder, Elizabeth Giorgi, who moved to Denver in 2015 to expand a non-venture-backed business she started in Minneapolis. “Probably the thing that made me think about building a scalable business more than anything else was — for the first time in my life, after having moved to Colorado — I had met other women who had raised venture.”

There is concern about future growth, due to overvalued unicorns or recession fears. Startups are wondering whether to ask for more money to create a cushion in a downturn, which RVC’s Harris said makes sense as long as the founder isn’t giving up too much equity.

“That’s certainly something a lot of us are conscious of, both with the fact that this has been a long bull market and we’ve got an election year coming up,” Harris said. “But until we really start to see evidence of the downturn, I really don’t think it’s necessary just yet.”

Besides, he added, “I haven’t yet seen the investor wallet tighten up.”



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