Viewpoint: Funding gaps threaten Denver’s growth companies
Serial entrepreneur Steve Case of AOL fame hits the road every year to shine a light via his “Rise of the Rest Road Trip” on a persistent problem: a shortage of capital for startups in emerging technology communities outside traditional tech hubs.
Case’s October stop in Denver – one of five cities on this year’s tour – showcased the plight of entrepreneurs located outside of Silicon Valley and the nation’s other major tech hubs, who often have a tougher time obtaining financial backing.
But lack of capital isn’t just a problem for startups. Hundreds of established growth-stage companies here in Denver also require access to capital to fuel growth by enhancing existing products and services, adding capabilities through acquisition, or a combination of both.
The 2016 “Innovation That Matters” report by the U.S. Chamber of Commerce pinpoints the funding gap as a challenge for Denver. Among 25 cities considered top drivers of the nation’s digital economy, Denver ranked No. 14 in total investment and IPOs.
This should matter to everyone who calls Denver home. The tiny startups that made their pitch and won a $100,000 check from Case on this year’s tour – including Denver’s Flytedesk – are exciting because of their promising potential, even though their economic impact largely has yet to be felt.
Growth-stage companies, by contrast, already are significant contributors to the local economy, and finding the capital they need can be a game changer in their ability to innovate, tap their unrealized growth potential, retain and attract top talent, and survive the next economic downturn.
These are rapidly growing companies with a proven business model, a large addressable market and an outstanding management team with a demonstrated ability to execute on a strategy, and need a partner with the capital and expertise to help them cement or achieve market leadership.
And there are a lot of them. Frontier Capital, a growth equity firm that partners with software and tech-enabled business services companies, may be tracking 20-25 growth-stage companies in Denver at any given time as potential candidates for investment.
An educated guess – based on the experience of investing in emerging technology hubs like Denver since 1999 – is that there may be 100 or more growth companies in the Mile High City that are nearing an inflection point where the need for outside capital becomes critical.
A casual observer might wonder why more investors haven’t taken to Denver, which the U.S. Chamber ranked No. 3 on its overall readiness to capitalize on the shift to a digital economy – thanks to its quality of life, young, educated workers, vibrant culture and an ecosystem that supports innovation.
Denver decidedly is not Silicon Valley or New York or Boston, where the big dogs of private equity invest most of their cash. If you’re looking for that sexy billion-dollar “unicorn” with technology that will change the world and pay investors handsomely come IPO time, you might not find it here.
On the other hand, Denver offers investors plenty of opportunity to partner with you might call “high growth/low hype” companies – typically B2B companies selling products or services into an enterprise, and often with a stable, recurring and fast-growing revenue base.
These are companies where the founders and early investors may be looking for a payday after many years of hard work building a successful business – and where an accomplished management team wants a partner that will help them forge a strategy to take the business to the next level.
Such partnerships are based more on smart growth rather than a “swing-for-the-fences” approach.
While Denver may lack a deep pool of these potential home-run venture opportunities, it is fortunate to have an abundance of very attractive growth-stage companies playing a critical role in driving the local economy.
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