An entrepreneurial Colorado considers its options

February 24, 2008

Coloradan.com (Fort Collins): In a region that breeds entrepreneurs and small business, some are concerned that Colorado is seeing fewer dollars provided by venture capitalists for startup businesses. According to a recent MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, while venture capital funds are increasing nationwide, the Centennial state saw its second consecutive year of declining funds.

In 2007, national venture capital investing hit a six-year high at $29.4 billion, the highest yearly investment total since 2001. Compare that to the $564.2 million of investments in Colorado-based companies and the roughly 15 percent decrease from the year before.

The matter is concerning for individuals looking to start companies, some worried that investors are worried and still hesitant from the tech fallout in the early 2000s as well as a lack of organized funding groups within the region.

February was Innovation Month at Colorado State University with events to help startup companies work on business plans, including securing funding. The series of events throughout the month, sponsored by CSU Ventures, addressed a problem many people are already aware of. “Capital is available in Colorado, but not plentiful, and there are essentially no organized capital sources – venture capital or angel investor groups – in Northern Colorado,” said Henry Nowak, director of CSU’s Center for Entrepreneurship.

The center helps not only students with entrepreneurial endeavors but also helps technology-based or high-potential companies to further develop ideas to “functional and financeable businesses,” Nowak said.

Steve Schmutzer, founder of Fort Collins-based Firefly Medical Inc., suspects the money is out there but venture capitalists are hesitant to hand out funds. “The fact remains that there is a lot of money tied up in VC firms these days,” he said. “I suspect that many of the VC companies are still dealing with a bit of a hangover from the tech or dot-com bust of the past, and everyone’s a little jumpy about being ‘the first to move’ on any new opportunity.”

…Fast Company magazine named Fort Collins as one of the 30 Fastest Cities to Work, Live and Play in July 2007, ranking Fort Collins with world business leaders such as Toronto, London and Shanghai. The reason? Inventors in Fort Collins generate 11.45 patents a year per 10,000 people, which is almost four times the U.S. city average, according to the magazine. So why are venture capitalists hesitant when the region produced a significant number of new products?

“Typically, a true VC firm seeks to reduce risk, and if possible, to virtually eliminate it before they jump in. As a result, a true VC firm tends to invest when a company is already in revenue-producing mode,” Schmutzer said.

…On a much grander scale, ICE Energy in Windsor managed to get through its first few years on $10 million in investments, but the core founders of the company, which focuses on energy storage, had to put up the money to initially fund patents and ask friends, family and “Rolodex relationships” for help said CEO Frank Ramirez. “This is not a local lifestyle business,” said Ramirez, who once owned an investment bank. “Its reach is global; the vision is global.”…