0326_health-care-investing_400x400Angel investors put their money into all kinds of early stage companies with the goal of helping entrepreneurs and getting great financial returns.  There are misconceptions out there that angels shy away from health care investments, but nothing could be farther from the truth.

Health care investments can carry the traditional market and execution risks that any company has, but they can also have extraordinary regulatory risk if FDA approval for a product is required.  The FDA process can take years and millions of dollars to complete.

Most health care investments that Rockies Venture Club Angels look at don’t have FDA risk, or if they do, the process is minimal and takes only two years or less from the date of the investment. All FDA approvals are not the same and as a group we’re learning about the kind of FDA processes that we can accept as a part of an angel risk profile and those that are better left to large Venture Capital funds who have both the money to get through the process and the time to wait it out.

Angels typically like investments that can exit within five years or less.  There are a lot of Health Care companies that fit this profile.  One trend we’ve seen is that companies can exit earlier now since they are no longer required to build a sales channel as part of their proof of concept.  Once they can show that their innovation works and that people will buy it or that FDA Phase 1 trials are successful, they are ready for exit.

Smart founders will have a target list of acquisition targets identified before they even raise their first angel round.  By the time their concept is validated, they should already have relationships established with the major acquirers in their industry and be ready to negotiate a deal.

To see four examples of companies that can have profitable exits with 10x investor return in five or fewer years, check out the pitch presenters at this year’s “Investing in Health Care” event put on by Rockies Venture Club.

  • RXAssurance, Bob Goodman, provides a platform for patients and providers to keep each other informed about whether medications are being taken and that they are effectively treating the patient.
  • Six One Solutions, Ginny Orndorf, an innovative targeted method for blocking breast cancer.
  • LeoTech, Steve Adams, a wearable system to detect and report hydration in patients, athletes or others for whom hydration is important (ie. Everyone)
  • ExchangeMeds, Anand Shukla, rovides better ways for pharmacies to manage their inventories by sharing with others across a network.

To learn more about these companies and trends in investing in health care, you may want to consider attending the RVC “Investing in Health Care” event, Monday September 9 5:00-7:30 in Golden.  For more information, or to register for the event, please Click Here.

title picPost by:  Adam Holcombe

On July 9, another strong showing from the members of Rockies Venture Club appeared at a monthly RVC event in downtown Denver. The discussion included a number of the startup community’s elite members to include: Erik Mitisek – CEO of Colorado Technology Association moderated the event which featured Chris Onan – of Galvanize, Andrei Taraschuk – of Boulder and Denver New Tech, and Jenny Slade – of National Center for Women & Information Technology (NCWIT).

Chris Onan opened up by defining Denver’s current grow engine as more arriving millennials than in any other US city. This growth in the city will ultimately lead to increased quality and quantity of ideas going forward. Chris also mentioned that a potential problem facing Denver is that there is a lack of strong tech bellwethers to build the community around. However, in his own words “money finds good ideas”. This challenge goes out to those looking to pave the way from idea creation to the launch of a new value-creating venture. Chris also highlighted a key point that leads entrepreneurs to success “you must give to get”. This important concept highlights the importance of patience as yet another virtue necessary for entrepreneurial success.

Andrei Taraschuk was next to speak about the business ideas that have been most prevalent in the local community as of late. Andrei has seen more hardware along with Smartphone related devices recently due to the increased usage. These “small screen” devices are rising in popularity across the globe, and “growth is expected to continue at a 10% compound annual growth rate through 2016”1.  Andrei also highlighted that it takes a long time to build a community for start-ups and explained the importance of fostering the relations between entrepreneurs and venture capitals. Andrei highlighted an interesting dynamic between himself and Chris Onan, as Andrei had pitched a business idea to Chris as a potential investor about six years ago and Chris didn’t invest at the time. Andrei’s key point was to focus one’s efforts on building a business and don’t worry about the cash. He, along with other members of the panel, went against the conventional wisdom of viewing the attraction of capital, as definite start-up success by describing, “Don’t celebrate dilution”.

Jenny Slade gave the closing comments. Her data driven comments were core to what drives her decisions to play a significant role at NCWIT. She forecasted significant growth in tech jobs in the next 10 years with only 18% of current computer science majors being female. This undoubtedly leads to her next point that “we are missing half of the good ideas”. Her true goal is to ensure the startup community leverages diversity and all that women bring to an organization. Many tend to agree as the change in business dynamics lend more favorably toward collaboration and multi-tasking, women are viewed as more equipped to keep pace than their male counterparts (For More). One key point Jenny made was that women tend to await an invitation versus interject themselves into a start-up. In her words, one clear way to keep women from applying to a job is by putting “ninja” in your job description as women are generally less inclined to desire to be viewed as a ninja versus men.

This successful RVC event is yet another example of how a bonded community can truly leverage its strength in strong, local organizations to enhance growth and value creation. The key concepts included give in order to get, build the business and don’t worry about money, and finally don’t miss out on half the good ideas by not inviting women into your organization. I truly appreciate the “lessons learned” from a group of true business leaders in the community, and I wanted to share the insight gained from the event. I look forward to being apart of more RVC events like this in the near-term.

 

About the Author – Adam Holcombe is a partner of Cohort Capital, a Venture Capital Firm in Denver featuring a group of young professionals out of DU and CU’s MBA programs coming together to find and fund great opportunities. Although we source our deal-flow from across the country we have a love for Denver and the regions budding entrepreneurial ecosystem. We believe the city is poised to become one of the country’s top regions for start-up activity.

 

1: http://www.fiercemobileit.com/story/global-smartphone-market-growth-estimates-vary-among-research-firms/2013-06-03

taxi

A detailed, focused, and feasible go to market strategy is a critical distinguishing feature between the majority of startups that fail and the few that achieve great success.

As an example, imagine you are an angel investor listening to a pitch from a company developing an aftermarket add-on to improve automobile gas mileage. Its go-to-market strategy consists of identifying early adopters of efficient automobile technologies and targeting them at auto shows in environmentally conscious and heavily regulated states like California and Massachusetts. The company will sell products directly through its website while building relationships with aftermarket auto parts chains and independent retailers. The emphasis will be on young professionals, targeted through a massive web-based campaign to build awareness and drive adoption. Conversations with early customers will inform product improvements and enable the startup to refine its marketing pitch.

With a few minor changes, this generic and high level go-to-market strategy could apply to almost any technology in any market. As an angel investor, you’ve heard it many times before, and you’re skeptical: activities like “identifying and targeting early adopters”, “building awareness”, and “driving adoption” are easy to talk about but difficult to do well.

Now imagine you are an angel investor listening to another company that is at the same stage of development for an almost identical product. In this hypothetical example, the company tells you that it has identified automobile emissions reduction programs in three major US cities, with the largest in New York City (NYC).

NYC’s program offers attractive rebates for devices that reduce particulate emissions in cars. Although not the primary function of the startup’s device, the company was able to tweak its design slightly to take advantage of the little-known incentive. The company found a chain of aftermarket auto parts dealers in NYC that cater to environmentally conscious car owners, and it has engaged them in discussions about the product’s design and price point while exploring the potential for a distribution agreement. Additionally, a “green” NYC cab company is interested in advertising the product on the roofs of its cabs in exchange for discounts on the startups’ devices.

Based on the attractiveness of the market, the startup has decided to launch its product in NYC and quickly follow with launches in other major cities, starting with the other two that have automobile emissions reduction programs. It will use what it learns in NYC to refine its rollout in the other cities, which are already being planned to coincide with the ramping of the company’s manufacturing capabilities.

Which company would you have more confidence in as an investor? The second company is already doing all of the things the first company was only talking about: it has identified retail partners and early adopters, it has located the market where its offering has the lowest cost to consumers (thanks to the rebates), and it is focusing on a small geography where it can maximize the impact of every dollar spent on sales and marketing by taking advantage of network effects. It has a well-defined expansion plan linked to its manufacturing capabilities, so that it can grow at a fast but manageable pace. As a potential investor, even if you don’t agree with the plan, you know the company is thinking strategically and you have a starting point for suggesting changes.

Putting together a go-to-market strategy is easy, and every entrepreneur has one. Often it relies on the development of a product so great that it essentially sells itself: all the startup has to do is build it and let people know they can finally buy it. By the time entrepreneurs in this mode start thinking about the details of their go-to-market strategy, competitors may have already established themselves in the most attractive market segments and with the most valuable partners. This will make every future sale more difficult, because the startup is forced to pursue customers and partners less interested in its products. Additionally, if a pivot is necessary, entrepreneurs more focused on the technology than the market may not realize it until they have wasted major time and money. The final drawback of this approach is that savvy investors recognize its limitations, and that could make raising money difficult.

In an environment where the vast majority of startups fail, entrepreneurs with such a poorly defined go-to-market strategy are taking on a significant and unnecessary risk. How do you know when your strategy is detailed and focused enough? Ideally, you should be able to list the top 15-20 potential customers (for business to business startups) or the top 3-5 channel partners (for consumer focused startups) based on the features that distinguish your offering from the competition. You should be able to make a compelling argument about why these customers are more promising than those in other market segments, and you should be able to describe how you’re going to sell to them and how you will move beyond those initial customers to the broader market.

It takes time to figure out these details, so it is important to start early. It is much easier and faster to change an existing plan based on new information than to develop a plan from scratch at the last minute. With so many ways to fail, it would be a shame to let one so predictable kill your company.

Jay Holman is Principal of Venture to Market LLC, a Boulder based consultancy providing go to market services for new ventures in the cleantech industry.

Guppy Tank LogoPicture this: Your company has a proven business model, consistent recurring revenue, and an obvious path to growth. You’re making money, but need a cash infusion to get to the next level. You aren’t poised to grow the 10-30X VC’s or angel investors might be looking for, and while you have money coming in you don’t have the balance sheet for a bank loan. What do you do?

Guppy Tank, coming to Galvanize in Denver on September 12th, might have an answer. Born from the idea of TV’s Shark Tank, Guppy Tank is a 1-day alternative lending/investing event to help companies that have revenue but need cash. I was able to talk with Founder and CEO Darrin Ginsberg on the phone, and then catch up with COO Jon Engleking after he was on the Venture Banking panel hosted by Rockies Venture Club that evening.

Alternative lending has a few advantages over more traditional methods of acquiring funds. While venture capital may be the sexy way to raise money, only around 1% of companies ever do, since most are outside of the growth potential VC’s are looking for. Even for the businesses in their target range, we’ve seen the Series A crunch, which can fall around the time that companies have proven their model but aren’t profitable yet. Angel investors as a group fund a wider range of businesses, but they’re looking for similar things as VCs. Bank loans mean the entrepreneur gets to keep their equity and upside potential, but they typically loan against either hard assets, or profitability with a strong balance sheet  – neither of which are common in a startup. While alternative lending may involve higher interest rates than a bank, it can fill a gap in the funding landscape for promising companies that are making money but couldn’t get loans otherwise.

The Guppy Tank team has seen success with this concept before. Their first company in the space, Super G Funding, provides debt financing for credit card processing companies (ISO’s), again lending against residual revenue streams. After getting that up and running, BizCash was next, operating on a similar model of revenue backed installment loans, and serving a wider variety of businesses than Super G Funding. 

Guppy Tank is a combination of the ideas from their other companies and the show Shark Tank. Although the events aren’t televised, they are similar in format, hosting 7-10 entrepreneurs to pitch throughout one day. Denver will actually be their first event open for the public to watch. There are a few differences from the show – Guppy Tank will make decisions as a group, so you won’t see them fighting against Mark Cuban for deals. Instead of having a set panel of investors, Guppy Tank invites local angels to participate in events for each city they host events. Although they’re primarily oriented toward lending $25,000-$500,000 per event, The Guppy Tank is also open to making minority equity investments. They’ve hosted events in both Newport Beach and Los Angeles, CA and now have plans to expand to the rest of the country.

“Denver has good vibes,” Jon said at the RVC event. Maybe that’s why they chose Denver as the first event outside of California, ahead of Chicago and New York. They have chosen Denver for investments in the past, as Darrin is an investor in INCOM Direct, SupportLocal, and Zen Planner. Since SupportLocal offices out of Galvanize, they had already had a good experience, and were excited to host the event there.

Applications are due no later than September 8th 2013, but space is limited so make sure to get applications in early. Since the event open to the public, (and just before Denver Startup Week) if you just want to watch, come by Galvanize on September 12th!

 

Article by Tim Harvey, Regular Contributor to the Rockies Venture Club Blog

 

 

before and afterYour pitch is often the first impression your company will make with an investor. The company can be amazing and if your pitch is still rough, your company looks rough too.

When you are in front of VCs or angel investors you know it can make or break your fundraising efforts. Combining two of the most challenging things someone can take on (entrepreneurship and public speaking) your presentation can be anywhere between enlightening and embarrassing for both you and everyone in the audience. Here are some ways I see people screw up the pitch of otherwise good startups. This isn’t an exhaustive list, just the most exhausting things I see on a regular basis. 

I’m only talking about the pitch itself here; assuming that you have a company with a real product, a solid team, and traction in the market. You know what you’re asking for, your valuation is reasonable and defensible, and you don’t look like an idiot. Perhaps you even have over a million dollars in revenue and strategic partnerships in place – even those companies can mess it up. Whatever the case, you’ll probably have a short 5 -15 minutes on stage, and only a few slides (at most) to make a first impression.

Don’t blow it! Be mindful of what the audience is here for, and you have a much better shot at closing your round. 

Here are 5 ways to screw up your pitch: 

  1. Too narrow of a talk. Frame the problem you’re solving and why it’s important, and go from there. Hold off on the technical aspects – while they may be easy for you to talk about, it’s not so easy for someone who hasn’t heard of your startup to understand. Most of the time, scientific or detailed answers are best left to the Q&A, or (even better) one on one with the prospective investor after the pitch. Get out of you own head, and make sure you put your idea in context of the problem you’re solving and the ecosystem in which it operates.
  2. Forgetting what investors do. Keep in mind that they are investors, so they want to hear about the investment. Unfortunately, that sense in that isn’t as common as it should be. Know what investors want to accomplish, and learn from CEO’s who have raised and exited successfully before. Understand your valuation and think about the exit, because that’s how investors get paid, and many entrepreneurs forget that. Talking about the cool idea you have without any numbers to back it up might work with an unexperienced angel or a rich uncle, but it won’t work with people who know what they’re doing. 
  3. Acting like you’re in business class.  Avoid industry-specific jargon and MBA-speak. Your audience is smart, but it’s your job to make sure they can understand you. They may have already heard 20 pitches that day, with the same acronym in 3 different contexts, and once you lose their attention it’s very tough to get it back. Also, trying to appear impressive with something other than actual accomplishments may give the audience a signal that you’re not coachable, which is a big red flag. Investors also won’t care about your 50-page business plan like a marketing professor would – be concise (in large font) in your deck and save the business plan for due diligence.
  4. Not practicing enough. It’s okay to feel nervous about the pitch. It is not okay to ignore what makes you nervous. The single best thing you can do to reduce fear is by practicing what you’re going to say, many times over. Practice on your own, in the mirror, and in front of real people. I joined Toastmasters when my career led me to frequent public speaking, and it’s the best thing I could’ve done to improve my presentations. Public speaking wasn’t brand new to me (I had probably spoken to over 1,000 people in public at that point) but the difference I saw was dramatic. I’m still not an expert, but it was a steep and useful learning curve. Not all CEOs will have the time to join a public speaking group, but you at least need to dedicate ample time to practice.
  5. No feedback. Learn all that you can from your practice. Record yourself on video and watch it – it’s probably humbling. Feedback from other people is extremely valuable as well. Toastmasters does a great job of this (on the technical speaking points) and it’s one of the most best parts of the program. Rarely in life are we given honest, realistic feedback (even if it stings) so soak it up when you can. Ask knowledgeable people in the industry like angels or other CEOs to watch and critique both your business and the presentation. If you’re able to get a pitch coach to work with you through the process, be thankful and take advantage of it.

Overall, make an effort to be more aware of what your investors are looking for, and how you communicate most effectively on stage. If you’ve gotten to the point where everything else in your business is solid enough that the only thing holding it back is the pitch, consider yourself lucky. This isn’t an easy process, so learn as much as you can. Then go out, get more feedback and practice, and keep polishing!

 

Article by Tim Harvey, regular contributor for Rockies Venture Club blog. 

 

 

Colorado has a lot to offer cleantech entrepreneurs, from targeted grants, to easy access to NREL’s technology commercialization resources, to cleantech focused entrepreneurial programs at top research universities, to name just a few. There is no more supportive place in the country to launch a cleantech company, which gives local angels a distinct advantage when investing in this growing, and complex, industry. Colorado knows about investing in cleantech.

The only way the community could do more to support cleantech would be to scour the country for experienced, successful entrepreneurs, bring them to Colorado and immerse them in the local cleantech ecosystem, then provide guidance from industry experts as they develop business ideas around one of the numerous innovations emerging from local government labs and universities. Enter the Cleantech Fellows Institute, a Colorado Cleantech Industry Association (CCIA) program established to do exactly that.

The Institute kicked off in 2012, with a class of 5 Fellows who had considerable entrepreneurial experience outside the cleantech industry. The Fellows knew how to start a business, but they didn’t know cleantech, so they spent 175 curriculum hours listening to 160 speakers, and took almost 30 cleantech related tours, to come up to speed. Each Fellow undertook a capstone project centered on a new cleantech business idea, and in the Institute’s inaugural year this exercise led to the creation of two seed-stage companies and one non-profit.

Under the direction of Executive Director Steve Berens, the Institute is now accepting applications for its second class of Fellows. This year the program is undergoing some changes based on lessons learned from the first class, including an expanded international component. The program will include a week during which delegates from around the world descend on Colorado to participate in the Institute’s activities and make connections between the cleantech communities in Colorado and their home countries.

Clearly, Colorado is putting a lot of effort into stacking the odds in favor of the Fellows and the cleantech companies they hope will emerge from the Institute. The VC community has taken notice, as evidenced by the 19 venture capital partners the program has brought on board to date. However, there is room for additional engagement from Colorado based angels, who have an advantage in their ability to participate throughout the process since the Institute is based in their own backyard. Interested angels can send an email to mailto:info@cleantechfellows.comto learn more and sign up for regular email updates.

Even with all of the support Fellows will receive through the Institute, cleantech remains one of the most challenging industries in which to start a new venture. The Cleantech Fellows Institute provides access to critical knowledge and a great support network, which will reduce risks in my opinion but it certainly doesn’t come close to eliminating them. The real determinant of the program’s ability to spawn successful cleantech startups is underway right now: the Fellows application process. The quality of the Fellows accepted into the program will have the greatest influence on how successful it is, and the ability of local angels to get to know the Fellows over the course of the program is an opportunity that should not be missed.

Jay Holman is Principal of Venture to Market LLC, a Boulder based consultancy providing go to market services for new ventures in the cleantech industry.

 

 

From time to time a new ranking of the VC must-read blogs appears on the internet. During the research for this post I went through many of them, some based on the number of unique visits some others on the author´s quality scale or personal preferences. As it turns out, the first fifteen positions are always taken by the same guys.

In a world where internet has taken over and leadership claims to be global, it occurred to me to check the relationship between an active and prolific VC community (based on # of deals and $ invested) and the existence of VC thought leaders in that community.

California, Massachusetts, New York, Washington and Texas ranked in the top five positions in terms of venture capital invested based on the 2012 figures provided by the National Venture Capital Association (Colorado was 6th. Yay!). Let’s see who are the most relevant venture capital bloggers in these communities and what are they saying.

 

For the purposes of this post a state is considered a Community and blogger is a thought leader. In the VC world, bloggers aren’t just opinionated, they are professionals with years of experience.

1. California:

Eureka! We have found it, the world champion in Venture Capital based on number of deals and amount invested. Thus it doesn’t come as a surprise that it is also the winner for the number of relevant bloggers!

Area: Menlo Park / Silicon Valley

Firm: August Capital

Blog: Venture Blog.

Area: Los Angeles

Firm: GRP Partners

Blog: Bothsidesofthetable

  • Paul Graham: Co-founder of the Y combinator and for many the “king” of bloggers. In his minimalist looking website you can find gripping essays (no blogposts) that won´t leave you indifferent, just check his last one on how to get startup ideas.
Area: Mountain View

Firm: Y Combinator

Blog: PaulGraham

  • Chris Dixon: Entrepreneur and investor with a moderate style. Dixon is considered a “greater explainer of trends” and so he does in hardware startups.
Area: Menlo Park / Silicon Valley

Firm: Andreessen Horowitz.

Blog: CDixon

  • Ben Horowitz:  self declared a rap fanatic, Horowitz uses rap lyrics as prefaces of his blogs and doesn´t have a problem disclosing numbers and strategies. Check his last post on how to hire sales people.
Area: Menlo Park / Silicon Valley

Firm: Andreessen Horowitz

Blog: ben´s blog

The list doesn´t finish here it goes on and on with other brilliant bloggers such as Bill Gurley or Dave Mcclure. So it seems the most VC active state has the most active and relevant bloggers.

 

2. Massachusetts:

Meanwhile on the opposite coast, Massachusetts emerges as the second VC power.

  • Rob Go, Lee Howe, David Beisel. These three VCs are the cofounders of Next View Ventures, but apart from sharing their company they also share a passion for blogging each one of them with a different style and point of view.
Area: Boston

Firm: Next View Ventures

Blog:  Rob Go, Lee Howe, David Beisel

Area: Boston

Firm: Volition Capital

Blog:  Thinking about Thinking.

 

3. New York:

With New York City as largest, richest and most influential regional economy in the United States, and Manhattan as the home to six major stock markets, venture capital is rapidly growing in this region.

  • Fred Wilson: The raising voice for the New York Tech Scene. Famous for his blog section MBA Mondays  with around 160 posts in MBA topics such as revenue models-gaming. His blog constitutes an enormous body of work and knowledge worth a deep dive in.
Area: New York

Firm: Union Square Ventures

Blog: AVC

Area: New York

Firm: Brooklyn Ventures

Blog: Thisisgoingtobebig.com

 

4. Washington State

Nobody stood up in the Seattle community until the 7th of October of last year, when the VC Greg Gottesman wrote his first blogpost.

  • Greg Gottesman:. The VC mixes personal opinions and experiences with business tips and life style advices in a looking promising blog.
Area: Seattle

Firm: Madrona

Blog: starkRavingVC.

 

5.Texas

“The exception that proves the rule?” With a GDP bigger than The Netherlands or South Korea Texas ranks the 15th economy in the world and the 5th state in VC investment… And there is nobody taking the lead out there in the bloggosphere… The more I think about the whys of this, the more my fingertips tingle for a new blogpost.

If you are reading this and you know of someone please let us know we will be happy to include a Texan blogger!

 

6. Colorado:

Yup! I know It´s out of the top 5 but…

  • Brad Feld: In a mix between personal and professional thoughts Brad Feld has gained the respect of the VC and entrepreneur community not only in Colorado but also worldwide. Prolific, eclectic and sometimes controversial FeldThoughts is full of articles worth your time. Check out his last post on Software patents.
Area: Boulder

Firm: Foundry Group

Blog: Feld Thoughts

 

In a nutshell, in California, Massachusetts, New York and Colorado  the equation seems to work and a high levels of investment are accompanied by well-know blog leaders spreading the word out. On the contrary, Texas and Washington don’t follow the pattern! Yes, on the internet area leadership is global, but to certain extent VC investments and communities are still local and so they are their know-how and customs. Texan and Washingtonian bloggers or bloggers-to-be raise your voice! We avid readers, entrepreneurs, innovators, angels and investors want to know and are waiting for you!

 

About the Author: Sara Rodriguez is the new Associate Director of the Rockies Venture Club. Please consider welcoming her and introducing yourself when you see her at RVC events. 

 

 

Article by Tim Harvey, regular contributor to Rockies Venture Club Blog

This week, Fusion-io acquired Louisville, CO based NexGen Storage for $119 million. The next day, I had a chance to sit down with venture capitalist Kirk Holland of Access Venture Partners, who was also on NexGen’s board. Access Venture Partners co-led the $2 million series A round with Grotech Ventures, and Next World Capital later led the $10 million series B.

NexGen founders John Spiers and Kelly Long have been around the venture capital circuit before – they were co-founders of Boulder-based data storage company LeftHand Networks, which sold to Hewlett-Packard in 2008 for $360 million. A few years later, they again had a vision for a better data storage technology and started from scratch. This time around, solid-state disk drives and cloud infrastructure were ever more important, and they developed their product from the beginning with these ideas in mind, building it to intrinsically protect their competitive advantage. John and Kelly bootstrapped NexGen to get started in 2010, and reached out to Kirk regarding venture funding after about 6 months. Due diligence meetings, which went on for a few months, were held in Kelly’s basement where they first hatched the idea of NexGen – and a few short years later the $12 million in capital turned into an acquisition nearly 10X that amount. The exit was faster than expected, but they thought the terms were great and they were excited to work with Fusion-io.

Kirk’s previous firm, Vista Ventures in Boulder, began investing in LeftHand in 2001 so he had the chance to get to know John and Kelly over many years. He was impressed with the team more than 10 years ago, so in this deal he said “working with John and Kelly took the team risk off the table.” Given this strong relationship and the fact that LeftHand had one of the biggest VC exits Colorado has seen, they were ready to do it again. “The industry was pretty crowded when we made the investment,” Kirk said, with both venture-backed and big name tech companies all trying to do the next big thing in data storage. He thought NexGen’s technology could leapfrog the other products, and the experts Access Venture Partners brought in for due diligence confirmed that. “They were really passionate about building a great, sustainable business. NexGen reinforced the idea of working with trusted relationships,” Kirk said.

Access Venture Partners is a big name in the Colorado venture capital landscape. This is the second fund they’ve closed, and the MD’s there have invested over $100 million in more than 50 technology startups so far. These companies as a group have gone on to raise over $1.1 billion in additional capital, growing revenue 15X since initial investment, and creating over 3500 high paying jobs in Colorado. AVP currently has 20 companies in their active portfolio, with 19 successful exits. Their focus is on high-margin technology businesses in large or rapidly growing markets, especially in data security/storage, cloud computing, and digital media/consumer internet businesses. They lead the vast majority of fundraising rounds they participate in, and while sometimes that means writing the largest check, they also lead by investing first and getting other VC firms on board. They also like to work closely with entrepreneurs after the investment is made, often taking a board seat and using their connections to help place key executive talent, as they did with NexGen.

Kirk is a heavy hitter in the area as well, after moving to Colorado from the Bay Area. In addition to the nearly $500 million in exits he’s been involved with through LeftHand and NexGen, he led the Series B round for Rally Software, which raised $84 million in an IPO in April 2013. He was also an investor/board member for MX Logic, an Englewood, CO SaaS company that sold to McAfee in 2009 for $140 million. He’s been a TechStars mentor from the start, with Access VP also supporting and investing there early on. His focus within AVP is on cloud technologies and SaaS/consumer internet companies, and although he likes to leverage existing relationships, he also explores as many other startups as he can. “You have to keep looking under rocks and be open to the next generation,” he says. He believes in entrepreneurs who are passionate about building a great company, not looking for a quick buck. “It’s a red flag when I think someone is only in it for the money,” he says. Nonetheless, many of these companies have gone on to create substantial value here. “We’re really most happy for the founders and the (NexGen) team’s success. We’re here to support the entrepreneurs, but they’re really the ones that drive it.”

Big exits, especially in the 9-figure range like NexGen, are going to really help put Colorado on the VC map. While Boulder may be famous from investors like Brad Feld and TechStars, Kirk believes there is a shortage of early-stage capital in the area. “Early-stage investment has dropped in Colorado over the last 5-10 years as VC’s didn’t raise follow-on funds, while the number of young companies has grown”, he says. Venture capital isn’t limited to state lines, but it’s certainly helpful to have investors nearby. Fusion-io actually has offices just miles from NexGen, so this acquisition was sort of in their backyard as well. The universities in the area (CU, DU, CSU, Mines) attract technology and engineering talent, and many of the students that come to Colorado don’t want to leave after graduation. That’s what happened to me, and even though skiing might’ve been my excuse to move here when I was 18, it’s the people and the startup community (and the weather) that have keep me here. These schools also have close connections to the startup community, through groups like CU’s Deming Center for Entrepreneurship, and Colorado School of Mines’ Technology Transfer program to help students commercialize their inventions. Big players like Google, Microsoft, and Oracle are also importing talent by adding to their already-large ranks in Colorado. “The people here are very motivated and passionate about what they do,” Kirk says, “without the focus on a quick buck that leads to higher employee turnover rates” that concerned him with some companies he saw in the Bay Area. Colorado is also a less expensive place to build a business than anywhere in the big coastal cities, and still has solid venture capital groups like VCIRRockies Venture Club, as well as the sweetheart of Boulder, TechStars.

Although April was a great month for Colorado VC-backed firms, we have to keep innovating and building great companies to strengthen the region. More investment capital will certainly help – but it’s the people here that drive entrepreneurial success.

Article by Tim Harvey, regular contributor to Rockies Venture Club Blog

First Post by Sara Rodriguez-Lopez

For those (many) who don’t know me, I moved a few months ago to Denver where I began to volunteer at the Rockies Venture Club. After only 3 months I met a lot of interesting people and learned about so many different things that my head was ready to explode!

I earned my Master’s in entrepreneurship and I did start my own company in the past, but it was at RVC where I got to see, for the first time, how Angel investors work. Eventually, I thought “Ok, I got it! I’m starting to see the big picture” until Nicole Gravagna invited me to Pat Linden’s Anti-dilution class!

Anti-dilution, now that’s tricky stuff!

A couple of days before the class I started reading about anti-dilution… oh boy!!! Full ratchet, narrow weighted average, broad weighted average, pay to play…This stuff really made my head spin…  At the end, I think I ended up having a “more or less” clear picture about the anti-dilution provisions… So, here I am writing down what I learned (just the basics… very basic) and hoping this blog-post would help someone out!

 

What is dilution?

Dilution is the subsequent sale of shares of stock at a price per share less than that paid by the preceding investor. Therefore, to protect their rights investors usually include an anti-dilution clause in the term-sheet.

If you are an investor you may be wondering now: why when the shares are sold at a higher price it’s not considered dilution if my ownership percentage will be reduced?  Because, although it is true your ownership is being diluted, the increment on the share price implies that the valuation of the company went up. As a result, the overall value of your investment increased and you should be happy. Cool! First thing clear!

 

What mechanisms can be put in place to avoid investment dilution?

There are two main formulas:

A. Weighted Average Formula: is the most common approach to anti-dilution protection and calculates the price considering the price and the amount of money previously raised as well as the price and amount of money being raised in the subsequent dilutive financing.

There are two primary variations of this formula that are basically differentiated by what constitutes “issued and outstanding common stock”

a.1) Broad based: the term “issued and outstanding common stock” includes all shares of stock outstanding, common and future stocks.

  • For Founders: This is the anti-dilution clause more “company friendly” and also the most customizable one, many investors will agree upon this formula.

a.2) Narrow based: the term issued and outstanding common stock” includes only the common stock issuable upon conversion.

  • For Investors: Narrow based is the most beneficial for you since this formula provides a higher conversion rate than the broad based.

B. Full Ratchet: “when the conversion price of the preferred stock outstanding prior to such financing is reduced to a price equal to the price per share paid in such a dilutive financing” or in other words: if you bought a share per $1 and the new price is $0.5 the conversion rate is two. For each of the “old” shares you get two of the “new ones”. Under this formula it doesn’t matter if the company raises $20,000 or $200,000,000

  • For Founders: awful, no matter how you look at it you don’t want to be here (it seriously jeopardizes your ability to raise money from new investors).
  • For Investors: it is a great deal and the most protective clause you can get, but be careful in this way you can lock down the company to future investors.

 

Is there something the company can do to mitigate the cons of an anti-dilution provision?

One of the most common clauses that companies usually include in the term sheet in order to protect their rights is the “Pay To Play”  clause that provides anti-dilution protection only for investors who will participate in the next dilutive finance. With this formula the founders incentive their investors in keeping on investing in the company and therefore, avoid some the major problems of the Full Ratchet (It can also be incorporated in the Weighted Average Formula).

 

Is there something else that helps reducing the dilution risk?

Yes, having the “right valuation” can be, for both the entrepreneur and the early investor, the best measure against dilution. Why is that? Well, the answer comes easy, having a feet-on-the-ground valuation will avoid the issuance of future stock at a lower price as well as will save money in lawyers exercising crazy clauses in crazy terms sheets. I know, valuation is hard but definitely something worth spending some time on.

 

There isn’t a better contract than the one based on trust and transparency

Founders: the Investor is now part of your team (and you aren’t giving anything away).

Investors: the founders love the company and more than anyone they want the company to succeed… they don’t want to run with your money away!

Guys, let’s work together!!

 

So…I started writing this post for my own sake, it isn’t perfect and it doesn’t cover all the points but I think now I really understand what is anti-dilution and hopefully you do too.  Now time for a “fat tire”! Hope you enjoyed your reading 🙂

 

Further information at: http://www.stanford.edu/class/e145/2008_fall/materials/The%20Venture%20Capital%20Anti-Dilution.pdf

An original guest post by Jay Holman, Principal of Venture to Market

101010Denver

Update: Get information about 10.10.10 on 101010denver.com

10.10.10 will Bring Big Problems to Denver

Entrepreneurs have a unique ability to see opportunity in the problems others face, and they are irresistibly drawn in by the desire to create, and sell, solutions to those problems. This is the guiding principle behind the upcoming 10.10.10 event in Denver, which will bring 10 would-be CEO’s to town for 10 days to brainstorm solutions to 10 big problems. The goal is not just to see if participants can come up with feasible solutions to the problems, but to go beyond that by turning one or more of those solutions into successful startups led by members of the group.

The brainchild of Denver entrepreneur and Vokl founder Tom Higley, the 10.10.10 is an experiment to see whether the creative genius that leads to startup success can be reproduced in a laboratory environment. Along the way, the event will highlight the positive business climate and culture of the Denver area, which was already given a boost recently when the SBE Council named Colorado one of the 10 most entrepreneur-friendly states.

The 10.10.10 is not a business plan competition; instead, it is about collaborative business plan creation. When CEO level entrepreneurs apply to participate, they will identify a problem they’d like to discuss with the other participants. They won’t suggest a solution in their applications; those suggestions will come during of a 10-day working session in Denver during which all 10 participants work on all 10 problems. If a feasible path to a solution emerges for one or more of the problems, it will be developed into a business plan.

The focus will be on big problems, as bigger problems lead to bigger opportunities. Since a primary goal for this exercise is to start one or more profitable businesses, applicants will need to provide proof that large companies or groups of consumers are willing to pay for a solution to the problem the applicant describes. That means charity projects are out (sorry Jimmy Carter, but if all goes well the participants will be in touch after their exits).

So, will it work? Like any experiment, or any startup for that matter, 10.10.10 has its risks. 10 days is not a long time to come up with a solution to a major problem, and participants won’t have much of an opportunity to gather additional information to flush out the details of their proposed solutions. Lots of problems seem easy to solve until you look at the details; hence the ubiquitous pivot.

However, there is something to be said for taking a step back, putting your head together with a group of smart people with access to capital, and looking for good opportunities that others have missed (I refuse to use the term “low hanging fruit”). How many times have you asked yourself, “why didn’t I think of that?” after you see someone strike it rich for rebranding off-the-shelf paint as liquid paper or repurposing a small box as a humane mouse-trap? There are so many solvable problems out there that I think a group of successful entrepreneurs with resources should be embarrassed if they don’t knock a few off and make a bundle in the process. Just don’t forget Jimmy on your way home from the bank.

Jay Holman is Principal of Venture to Market LLC, a Boulder based consultancy providing go to market services for new ventures in the cleantech industry.

101010 Denver 101010Denver