Colorado Venture Summit Pairs Top Entrepreneurs, Out-of-State VCs

6/23/14Follow @MichaelXBD

Last Thursday, the Colorado Venture Summit brought together the CEOs from some of Colorado’s top startups and tech companies and the partners of venture capital firms from across the country. The goal was to help connect promising or thriving companies with investors who are not familiar with Colorado, according to David Gold, chair of the organizing committee. Gold is a managing director at Access Venture Partners, a Denver-area venture capital firm.

Turnout for the event was healthy, with several dozen people convening in Denver at Coors Field. Here are some observations from the afternoon.

The Outsiders’ Views

One of the two main panels featured VCs from around the country who gave an outsider’s perspective on Colorado. The VCs were familiar with the state because they had made or tried to make investments in local companies.

[The second panel featured successful local CEOs talking about the benefits and challenges that come from building a company in Colorado. See this article for their thoughts.]

Overall, the panelists were bullish on Colorado and believe it is home to a growing number of talented entrepreneurs and interesting companies.

Adams Street Partners managing director Jeff Diehl has made investments in Colorado for at least a decade, most notably in MXLogic, which McAfee bought in 2009 for $140 million. Adams Street also invested in the $35 million round Denver-based Sympoz raised last year and has a stake in LogRhythm, which is in Boulder.

“A lot has actually changed since I first started coming to Colorado,” said Diehl, who works out of Chicago. “I’d say that back when I first got out here, the level of seasoning of founders and CEOs and executives was a lot lower than it is today.”

“Now you’re starting to see repeat entrepreneurs and CEOs who have actually scaled businesses into the tens of millions or maybe even hundreds of millions of dollars, which brings a different level of talent to a company,” he said.

“It used to be very difficult to recruit from Silicon Valley, but I think that’s changed dramatically as well,” Diehl added.

Recruiting from out of state doesn’t seem to be as important as it once was, given the amount of homegrown and imported talent, but one gap—product management—has been difficult to fill, Diehl said, although he believes it’s a problem everywhere but Silicon Valley.

Given the importance of the relationship between investor and entrepreneur, geography will always remain a challenge for out-of-state investors, said Mike Majors, managing partner of Siemens Venture Capital. The firm is based in Boston and is the corporate VC division of the German electronics company.

“Venture really is a local business,” Majors said. “For those of us who have to hop on a plane, it is challenging for us to maintain a rapport.”

While some companies have CEOs and leadership teams that are self-sufficient, others can be “needy” and require attention, in which case distance creates a problem, he said.

But long distance relationships aren’t too tough, apparently. Siemens Venture Capital has made four investments in Colorado, which is more than they have in any other area, according to Majors. The firm has backed LogRhythm, AventuraHQ, Zolo Technologies, and Tendril.

There’s something about the attitudes of Colorado entrepreneurs that works well with the people at Siemens, especially in comparison to Silicon Valley entrepreneurs, Majors said.

His view is that elite entrepreneurs in Colorado are more realistic and straightforward than their peers in the Valley, where people are more liable to get caught up in hype.

“We find there’s a really good cultural fit for us where we make a lot of money and support entrepreneurs who are building stable companies that will last,” Majors said.

He conceded that might be because of Siemens’ unique corporate culture and the differing objectives between corporate and non-corporate VC firms. Siemens doesn’t need to see a 10x return on its investments, and its funds have a longer time horizon.

North Bridge Growth Equity, which is based in Boston, has not invested in Colorado, but it’s not for lack of trying, said Geraldine Alias, one of its principals.

Something she has noticed about Colorado entrepreneurs is that they’re a little behind when it comes to alternative ways of raising money. They tend to see it as a choice between bootstrapping and self-funding a so-called “lifestyle company” or throwing in with VCs looking for home runs and hundred-million dollar returns, she said.

“There are actually other ways you can raise capital, it’s not just a binary,” Alias said.

Her firm has a venture fund that looks for those home runs, but it also has a growth equity division that’s interested in other types of investments that don’t necessarily post as big of a return.

Colorado is on the map.

There’s a persistent belief in Colorado tech circles that the state doesn’t get its due when it comes to the quality of the companies and entrepreneurs it produces. The perception is there’s a lack of capital in the state, and investors from Silicon Valley or the East Coast just aren’t that into us.

It’s probably well past the time to change that view.

Scanning the list of companies that registered for the summit, it was easy to find ones, both startups and growth-phase companies, that had raised money from out-of-state investors. They range from local standard bearers like LogRhythm, Sympoz, and Denver-based Ping Identity to startups like Convercent and ProtectWise, which just raised a $14.1 million round despite still being in stealth mode.

There’s also an interesting trend that didn’t get mentioned at the summit’s two panels—Silicon Valley legends are finding their way to Colorado and are making investments or even starting companies here.

Earlier this year, renowned VC Jim Breyer invested in Westminster-based Datalogix, which also just raised a $45 million round, while Netscape founder Jim Clark participated in Denver-based Ibotta’s $20 million round. Byers and Clark are now board members of their respective companies.

But they’re latecomers compared to Sun Microsystems founder and CEO Scott McNealy. He is the co-founder and chair of Denver-based Wayin, which was started in 2011. Wayin just raised $12.1 million.

Finally, Wall Street giant Blackstone has set up an outpost here, making Colorado the second locale to be part of the Blackstone Entrepreneurs Network. Its nonprofit put forward $4 million to support the initiative.

Those data points suggest great companies are getting noticed, which is something people like Foundry Group managing director Brad Feld, who is Colorado’s biggest booster, have said for a while now. His view is that early stage VCs hunt everywhere for promising startups, and late-stage investors don’t care about geography. If the potential is here, the money will come.

If there is a place where money is tight, it’s for new companies and unproven entrepreneurs trying to raise angel or seed rounds. But that’s an issue for another day (or summit).

Michael Davidson is the editor of Xconomy Boulder/Denver. He covers startups, venture capital, clean tech, energy, aerospace, telecoms, and whatever else happens above 5,280 feet. Contact him at mdavidson@xconomy.com. Follow @MichaelXBD

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