You think you can sell your company? Learn from those who have done it at 2013 CCC next week!

 

The entrepreneur’s dream: starting from scratch, building something significant, and creating value for everyonesuccess-next-exit on your side. Maybe that means holding on to a business you could retire on or pass down to your family. If you’re in the VC world, taking on investors means you are expected to cash out, hopefully for far more than was invested. Acquisitions and IPOs are great, but why doesn’t it happen more often? A successful exit can be a rising tide that lifts the boats around it – why do so few entrepreneurs actually make it? Beyond a little luck, what does it take to get there?

I don’t know all the answers to these questions. If I did, I might be taking a yacht to the island I just bought to relax for the rest of my life. More likely, I would be looking for the next masochistic opportunity to work really hard at something for no cash for years, in order to do it all over again. I haven’t exited a company (yet) so I can’t tell you the secrets from experience. Thankfully, a few serial entrepreneurs who have been through it all will share their minds on the subject at the Colorado Capital Conference November 6th and 7th.  This year’s theme is “begin with the end in mind” – Habit #2 of Stephen Covey’s 7 Habits of Highly Effective People.

Here are this year’s speakers, who together have built billions of dollars in value in Colorado:

Ryan Martens, Founder and Chief Technology Officer of Rally Software. The Boulder Colorado-based company, which specializes in agile project management software, priced its 6 million shares at $14, raising $84 million at a valuation of $315 million which has more than doubled since it’s IPO earlier this year.

John Spiers, CEO and Founder of NexGen Storage. John Spiers story of entrepreneurial lightning striking twice, first with his sale of LeftHand Networks to HP and this year’s sale of Nexgen to Fusion-IO for $119 million.
Kevin Reddy, CEO of Noodles & Co.   Noodles started with $73,000 in personal funds from founder Aaron Kennedy and raised $200,000 from friends and family.  The company grew to $300 million in sales and had an IPO that more than doubled in its first day and has continued to grow since then to a market cap of over $1.3 billion.
– Steve Georgis, CEO of LineRate.   Louisville based LineRate received early venture backing from Boulder Ventures and wroked in stealth mode with its Software Defined Networking product that increases speed and efficiency in data centers and just ten months after their product announcement achieved success with an acquisition by F5 Networks in one of the largest acquisitions in the Boulder area in the past several years.

Jared Polis, Congressman and a two-time successful entrepreneurial exit success story! His first exit with BlueMountainArts.com for $780 million and then ProFlowers for $480 million.

– Morgan Rogers McMillan, Executive Director of Entrepreneurs Foundation of Colorado (EFCO). EFCO brings together local venture capitalists and start-ups to set aside 1 percent of their profits to charity.

Register here for the 2013 Colorado Capital Conference. The opening Gala in Denver is the evening of Wednesday November 6th, and the full day conference in Golden is Thursday the 7th. Hope to see you there!

The Rockies Venture Club has announced the companies that will pitch at the Colorado Capital Conference. On Thursday, November 7th, the following 12 will give investor presentations:

 

 

These companies are now working with their volunteer individual ‘pitch mentors’ from the Rockies Venture Club. RVC will also provide volunteer ‘deal mentors’ experienced in startup financing to help entrepreneurs navigate investor term sheets and the post-pitch process.

 

This year marks the 25th annual Colorado Capital Conference and will be hosted in Denver and Golden on November 6th and 7th, 2013. It is one of the biggest events for early stage companies and investors in Colorado, and features a great speaker lineup this year. Register here if you haven’t already!

On November 6th and 7th, the Rockies Venture Club will host the 25th annual Colorado Capital Conference in Denver and Golden, CO. 12 companies will be selected to pitch to investors, and the 2-day event will focus on recent Untitledsuccessful exits from other Colorado businesses.

2013 CCC speakers include Jim Lejeal, CFO of Rally Software that went public this April, and John Spiers, CEO of NexGen Storage, who sold to Fusion-io just a couple weeks later. Congressman (and Techstars founder) Jared Polis will also keynote the conference. A rare breed in politics, the Boulder native earned substantial entrepreneurial success, including multiple exits and an E&Y Entrepreneur of the Year Award, before running for office.

Applications to pitch are competitive, and open until October 15th. Conference attendees and investors can find early-bird discount registration until October 10th. The Colorado Capital Conference is one of the most important events of the year in Colorado both for investors, and companies looking to raise $100k to $2 million. In 2012, companies that pitched through Rockies Venture Club received over $22 million in financing, and this year’s CCC is sure to kick off the last big funding push of the year!

 

By Michael Price,

Executive Director of Coalition for a Connected West

michaelprice@connectedwest.org

Innovation takes action. That’s a core takeaway from Denver Startup Week and the APEX Conference the prior week.  Both events were jam packed with amazing entrepreneurs who told inspiring stories of perseverance and anecdotes of how they made their ideas a reality.  Now people are wondering if the energy and excitement generated by DSW will have a lasting impact.  That may be the wrong question to ask.

DSW shouldn’t be looked at in isolation. The event is the culmination of years of hard work and is predicated on the fact that a startup culture already existed in Colorado.  Before DSW there were small meetups in coffee shops, at bars and larger ones like New Tech.  DSW’s existence and subsequent success is actually a sign that Colorado’s startup community is growing stronger.  If the community is going to continue to mature, it’s going to take constant action.

“Do it yourself first,” is a principle espoused by the book Rework by Jason Fried and David Heinemeier Hanson (creator of Ruby on Rails).  Colorado’s most successful startup entrepreneurs are people who embrace this perspective, and it’s a trait that has weaved itself into the local DNA.  Entrepreneurs see gaps in the market, create solutions and provide services that consumers are compelled to buy.  They don’t always need a lot of money or government support, they just do it.

Colorado’s spirit of innovation has grown despite threats to its existence. Using outdated models for managing markets, regulators can stifle innovation or, even worse, stop it in its tracks.  While there’s an interest in protecting consumers from bad actors, regulators can sometimes overreach and prevent great ideas from reaching their full potential.

That’s why it’s important that entrepreneurs be the leaders of the startup community, a philosophy of Brad Feld’s “Boulder Thesis.”

Entrepreneurs are the best vessels to carry the message that innovation can’t be contained and the winners and losers should be chosen by the market.  Those with the ability to take ideas from conception to consumer should be rewarded and allowed to compete.

At the Coalition for a Connected West, we strive to generate a dialogue between entrepreneurs and policymakers so that innovation in Colorado can continue to thrive.  We have a great advisory board of thought leaders, who also happen to be entrepreneurs, and are compelled to get involved.  They are the ones who can have the most impact because they live it every day.

If the startup community in Colorado is going to continue growing, it’ll take a commitment from entrepreneurs to be both leaders of their businesses and of their communities.  Have awareness about the policies that affect your community.  Learn more and work with organizations like CCW, Rockies Venture Club and Colorado Technology Association to make a difference.  Take our future in our own hands.

 

Crowdfunding has been a growing force in the financial industry, disrupting sectors each time it reaches a new one. p2biMicroloan platforms like Kiva and peer-to-peer lending such as Prosper have proven to be a quickly growing alternative in debt, and have increased access and choice for those looking for financing. Companies such as Indiegogo and Kickstarter have given rise to donation and pre-sale based funding for a wide range of people and businesses, and with the implementation of the JOBS act, equity can be sold over similar platforms as well. New technologies that connect people in meaningful ways have a way of changing the world, and P2Bi plans to be a part of that.

 

One area of financing that has not been disrupted by crowdfunding (yet) is the business receivables market. The idea of a business selling its invoices (accounts receivable) to a 3rd party to raise cash isn’t a new idea, and was even established in the Code of Hammurabi nearly 4,000 years ago. However, this $136 billion industry (in the US alone) has been quiet with relatively little innovation. Transparency has been an issue in the factoring industry in the past, and since it usually involves business-to-business transactions, it isn’t found in a public light very often.

P2Bi (Peer-to-Business Investor) is working to change this. As the first crowdfunded business receivables market, they have opened up a new and transparent path to finance growing companies, and have been connecting investors with small businesses since early 2012. This is an increasingly important gap to fill – according to a Pepperdine report, nearly 2/3 of small businesses in the US were recently unable to secure bank loans, where many had the ability and desire to repay loans but not the credit for a traditional bank to provide funding to them. With P2Bi, business owners are able to find competitively priced loans, and accredited investors can buy into portfolios of asset-backed business receivables, which are likely to generate a higher interest rate than cash instruments that are currently returning closer to 0 than even 1%. P2Bi works with a wide variety of small businesses, with the exception of transportation and construction.

P2Bi recently raised a Series A investment round, including investors from the Rockies Venture Club and John Spiers (who recently exited NexGen), among others. This follows their August 2012 seed round, and will be used to help the business scale. Among other activities, they will be hiring for multiple positions (LINK) and relocating from Louisville, CO to Denver. “We’re really excited about moving to Denver. It makes the most sense with the density of businesses and the finance industry in Denver,” said Krista Morgan, co-founder and CMO. P2Bi will also benefit from local investors and connections in the community. “Peter Adams (of RVC) was really instrumental in getting investors there and convincing them to come on board, Krista said.

Congratulations to P2Bi on closing their Series A, and best wishes helping small businesses grow while creating value in Colorado!

Tim Harvey is a Master’s of Engineering Management student at CU-Boulder and a regular contributor to the Rockies Venture Club. He has started a few businesses (nothing big yet) and most recently worked as a Fortune 500 marketing consultant with a neuroscience-based startup. Prior to that he was an investment advisor for individuals and corporations, holding FINRA Series 7 and 66 licenses.

Rocky Mountain Innosphere, an incubator focused on high impact scientific and technology startup companies, recently announced the launch of the cleantech focused “Innosphere at CREED”. CREED is the Colorado Center for Renewable Energy Economic Development, co-located with the National Renewable Energy Laboratory (NREL) in Golden, Colorado. Until now, Innosphere’s sole physical location has been in Fort Collins, Colorado, so the new location represents a significant geographic expansion.Innosphere_Circle
Innosphere’s move into CREED comes a few months after CleanLaunch, an incubator focused exclusively on cleantech, moved out. Four CleanLaunch companies transitioned into Innosphere during this time, including Fabriq, US e-Chromic, Solid Power, and EcoVapor Recovery Systems. Rob Writz, former Director of New Ventures at CleanLaunch, is now Innosphere’s Director of Clean Technology Programs. Clearly, Innosphere at CREED has enabled some continuity in the support available to former CleanLaunch companies, and it has preserved the presence of a cleantech focused incubator at CREED, which are both good things for Colorado’s cleantech industry.

Historically Innosphere’s industry focus has been much broader than CleanLaunch’s was, but according to Innosphere CEO Mike Freeman, Innosphere has always been committed to the cleantech space. This is reflected by the fact that Innosphere has nine current cleantech clients in addition to the four that recently came over from CleanLaunch. Innosphere at CREED reinforces this commitment to cleantech, and strengthens it through a closer relationship with NREL and NREL’s ecosystem of cleantech focused investors and partners.
Cleantech is an incredibly broad industry, so Innosphere has chosen four specific segments to focus on, including transportation technologies, building efficiency, electrical systems integration, and sustainable materials. Even these segments are extremely broad, but they are still narrower than the cleantech industry as a whole, which allows Innosphere to provide deeper support than they could if they tried to cover every clean technology.

Overall I believe Innosphere’s move into CREED represents a positive development for cleantech in Colorado, in part because it brings a new organization and some fresh eyes to explore ways to help local entrepreneurs take advantage of all that NREL has to offer. Sometimes it helps to shake things up a bit when tackling something as challenging as commercializing new clean technologies, and combining the substantial organizations of NREL and Innosphere might open up new opportunities and new paths to funding for startups that weren’t available, or weren’t easy to find, before.
As a next step, I’d love to see Innosphere open up a space for cleantech entrepreneurs in Boulder. Given the interest in co-working spaces there, which I’ve experienced first-hand at Colab Boulder, I don’t think they’d have a hard time filling it with paying tenants. Impact HUB Boulder, a co-working space for those trying to create a positive impact, comes closest to meeting this need today, but I think there would still be demand for a space dedicated to cleantech. I’m sure Innosphere has its hands full integrating its new CREED site, so I don’t expect to see any new sites opening soon, but I’ll keep my fingers crossed.

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.

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With the upcoming Exit Strategies Workshop, this press release is a timely bit of research about how to go about selecting an underwriter for your IPO.  With IPOs becoming a possibility in Colorado again, as evidenced by recent offerings by Rally Software and Noodles, this is information we should all take into account when planning Angel and Venture Exits.

To learn more about planning for an exit strategy and why it’s important to have your exit planned before you raise your first round of Angel or Venture Investment, consider participating in the Exit Strategies Workshop on August 20th, hosted by Rockies Venture Club.

 

PRESS RELEASE

Aug. 1, 2013, 11:11 a.m. EDT

Keating White Paper Posits that Venture Capital-backed Companies Choose IPO Bookrunners Based on a Fatal Flaw

 

GREENWOOD VILLAGE, Colo., Aug 01, 2013 (BUSINESS WIRE) — Keating Investments, LLC, the investment adviser to Keating Capital, Inc. KIPO +1.67% , has released a new white paper titled “The Fatal Flaw in Underwriter Selection by Venture Capital-backed Companies: Why Issuers Should Not Rely Solely on Bulge Bracket Bookrunners.” The paper, authored by Timothy J. Keating, President of Keating Investments and CEO of Keating Capital, outlines the reasons that most venture capital-backed companies choose “all-star” IPO underwriters and why these underwriters often fail to produce all-star results.

Keating’s paper argues that it is human nature to assume that bigger is better, but that isn’t necessarily the case when venture capital-backed companies choose lead underwriters for their initial public offerings.

Mr. Keating states, “Just as was the case with the popular book/movie Moneyball, most venture capital-backed companies choose “all-star” IPO underwriters based on flawed premises that often fail to produce all-star results.

“We believe the same groupthink forces are at work regarding underwriter selection for venture capital-backed IPOs, the result of which is an effective oligopoly of three investment banks who, on a combined basis, have served as the lead left bookrunner on 59% of the 148 venture-backed IPOs that have been completed from January 1, 2010 to June 30, 2013 (venture-backed IPOs represented 30% of the total 499 IPOs during this 31/2-year period). This market concentration has contributed to sub-optimal outcomes for these issuers and, because of the central role that IPOs play in small business capital formation, causes distortions in capital allocation, and ultimately negatively impacts the returns to venture capital investors.”

The white paper provides a comprehensive overview of the price and non-price dimensions (prestige and analyst coverage) that issuers use in underwriter selection and outlines the “myths and realities” of analyst coverage which has led to a bookrunner oligopoly.

In the conclusion, the white paper argues that small-cap issuers should include non-bulge bracket firms as bookrunners and select a blend of underwriters after having carefully considered the following:

— Non-price dimensions of underwriter differentiation (prestige and analyst coverage)

— Risk of size misalignment between the market caps of venture-backed companies and the institutional sales, trading and research franchises of bulge bracket investment banks

— Risk of pseudo analyst coverage from all-star analysts who have a very high marginal cost to forego coverage of an existing name in favor of a new IPO stock

— Increasing trend in the rate of “unsuccessful” IPOs and the potential underlying causes

— Drain on management’s time imposed by the need to conduct a non-deal road show after the IPO in order to get the stock into the hands of its natural long-term owners

“After such careful consideration then, and only then, choose the bookrunners,” Mr. Keating concludes.

To download the entire white paper, go to http://keatingcapital.com/newsroom/white-papers/.

About Keating Investments, LLC and Keating Capital, Inc.

Keating Investments, LLC (www.KeatingInvestments.com) is a Greenwood Village, Colorado-based SEC registered investment adviser founded in 1997, and the investment adviser to Keating Capital, Inc. KIPO +1.67% . Keating Capital is a publicly traded Business Development Company that specializes in making pre-IPO investments in emerging growth companies that are committed to and capable of becoming public. Keating Capital provides investors with the ability to participate in a unique fund that allows its stockholders to share in the potential value accretion that we believe typically occurs once a company transforms from private to public status.

To be added to Keating Capital’s email distribution list to receive quarterly newsletters and other announcements, go to www.KeatingCapital.com/contact.

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20130801006201r1&sid=cmtx6&distro=nx

SOURCE: Keating Investments, LLC

Investors are always concerned about balancing risk with potential rewards when making angel investments.  Recently P2Bi was able to close their deal quickly by adding warrants as a “sweetener” to the deal for early first round equity investors, resulting in a quick close to their deal minimum and the early round warrant deal closes on August 8th.  

The Deal

Early investors who committed to the first round of P2Bi’s Series A funding received warrants for up to 50% of their investment amount with half expiring in December 2013 and the other half expiring in June 2014.  The warrants allow the investors to purchase additional shares at the original offering price of $1.50.

So, what does this look like to an individual investor? 

Someone investing $50,000 would have the option to purchase up to $25,000 worth of additional shares at the original offering price of $1.50 up to December 2013, or if that was not exercised, they could purchase up to $12,500 worth of shares by June 2014.

Why is this beneficial? 

In every deal there is an execution risk.  The deal looks great, but investors wonder how the company will do once the investment has been made.  The warrants allow investors to observe how well the company performs against its benchmarks and to decide whether they want to make an additional investment at the same rate once the company proves itself and the risks are reduced.  This is always attractive to an investor since later stage funding rounds where risk is substantially reduced typically will have a price that is as much as double or triple the original investment cost per share.

For more information about how this deal was structured you can contact Bruce Morgan at P2Bi (bmorgan@p2bi.com)

Technology Talent Shortage:  Is the solution education, immigration or recruiting women?

tech picAttend any tech event in Colorado and you’re sure to walk away with the impression that there is a huge tech talent shortage here.  Even though the startup scene here is collaborative and cordial, things can get competitive when companies are looking to recruit talent.

In a time of high unemployment, how do we explain this shortage of tech talent?  One thing we know is that the shortage is not limited to Colorado – I am hearing of shortages all around the country.

Some people think that the issue is that we are not turning out enough educated people to fill these positions, yet according to research by the Economic Policy Institute, “For every two students that U.S. colleges graduate with STEM degrees (science, technology, engineering, and mathematics), only one is hired into a STEM job.”   At issue may be not that we are not turning out enough graduates, but that they aren’t graduating with the skills that they need to succeed in the job market.  In fact, the Economic Policy Institute reports that only about a third of the IT workforce has an IT-related college degree, 36 percent of IT workers do not hold a college degree at all and only 24 percent of IT workers have a four-year computer science or math degree, so maybe college education isn’t the answer.

Are programs like Galvanize G-School that focus on quickly educating people in real-world application development taking over and producing more cost effective workers?  The G-School guarantees a $60,000 job within three months of graduation or they’ll give your tuition back.  That’s a pretty confident offer – especially since the tuition is $20,000.  That’s a lot to give back in a refund, but it’s about a tenth of the cost of pursuing a full time private college education these days, and the job prospects are better, so I predict we’ll be seeing more programs like this in the future.

Is there really a shortage of skilled labor, or is it an economic issue? 

Another way of looking at the issue may be that there are plenty of skilled people in the US, but that there are better opportunities outside of IT that may be more attractive.  When U.S. talent is not actively entering the tech job market, the international market jumps in to fill the gap. Here are some interesting statistics (also from the Economic Policy Institute):

1)      The annual number of computer science graduates doubled between 1998 and 2004, and is currently over 50 percent higher than its 1998 level, so we’re turning out lots of grads.

2)      Immigration policies that facilitate large flows of guestworkers will supply labor at wages that are too low to induce significant increases in supply from the domestic workforce.

3)      Immigrant worker visas have more than doubled since 1998.

4)      52.7% of STEM graduates who do not pursue technology careers cite pay, promotion and working conditions as their reasons for pursuing work in other areas.

5)      Computer programmer salaries have remained relatively flat in real terms between 1994 and 2010.

These statistics would lead one to believe that immigrant workers are taking all the IT jobs, but on-the-ground experience doesn’t seem to support this, at least in Colorado where we’re seeing high demand and relatively high wages for developers.  The statistics suggest that all or most sufficiently trained U.S. workers are getting work in tech if they want it and that international labor is filling the gaps while also holding down wages in a Thomas Friedman-like flattening of wages globally for similar work.

What about women in tech?

Here’s the big secret in growing the tech labor force – hire women.

Well – if you can get them, it’s great for business.  Tech companies with women have been shown to use 40 percent less capital and be more likely to survive the transition from startup to established company. (From Cindy Padnos, Illuminate Ventures: “High Performance Entrepreneurs: Women in High-Tech,” 2010.)  Nationally, the Department of Labor estimates that our economy will add 1.4 million technology-related jobs to the workforce by 2020; however, at current graduation rates, we’ll produce only enough qualified candidates to fill a third of these jobs. In Colorado, there will be about 4 tech jobs for every 1 graduate with a bachelor’s degree in computing.  Recruiting more women to IT programs can at least double the amount of available talent.

Here are some interesting numbers from the bureau of Labor Statistics. (Department of Labor Bureau of Labor Statistics, Current Population Survey, 2012; Dow Jones VentureSource, 2012)

  • 26% of U.S. technology jobs are held by women
  • 20% of U.S. software developers are women
  • 11% of executives at U.S. venture-backed startups are women

Conclusions – if you’ve got a tech labor shortage, then you need to address all three areas.  Educate your workforce to be able to do the jobs we need to get done regardless of whether it’s a four year or master’s degree or a six month program.   Continue to recruit international labor to fill job gaps.  Think about how many foreign students who earn masters and PhD degrees that we’re sending back home and consider where to prioritize immigration policy.  Educate, recruit, hire and retain a diverse workforce with gender equality to improve performance and meet talent needs.

To learn more about technology investing, staffing and education in Colorado and around the country, consider attending Rocky Venture Club’s “Investing in Tech Companies” event coming up next Tuesday, July 9th in Denver. Register for Investing In Tech Companies event