Colorado may be home to health, fitness, and cannabis enthusiasts, but it’s also a growing tech scene. In April alone, 16 companies in the Centennial State scored funding, with five of those bringing in more than $10 million each.
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In fact, last week four Colorado-based startups secured funding including healthcare company CirrusMD, travel-focused Pana, SaaS startup Ablacon, and cybersecurity company Red Canary. Durango-based GitPrime was also recently acquired by Pluralsight for $170 million.
Consider the chart below of significant funding rounds for Colorado-based startups in April.
Given this amount of activity, we decided to explore how Colorado is faring from a venture perspective, and how those in the community are responding to the influx of tech, cash, and talent.
Colorado’s Deals And Dollars
Dollar volume peaked for Colorado-based startups in the second half of 2018, with deals of known size pulling in more than $550 million in both Q3 and Q4 2018.
On a yearly basis, dollar volume increased from $781 million in 2016 to $1.27 billion in 2017. That dollar volume total went up again in 2018, reaching a historical high of $1.9 billion, according to Crunchbase.
Deal volume decreased significantly in Q1 2019 compared to the immediately preceding quarter. It’s not enough data to call it a trend, particularly given the recent uptick in deals. For some perspective, the 20 deals from the beginning of Q2 to May 9 raked in a total of nearly $178 million, or about 96 percent of the $184.4 million known total raised across 30 deals in Q1.
In terms of regional breakdown, Denver has led the pack in deal and dollar volume since the beginning of 2018, with Boulder coming in second.
Let’s contextualize these numbers by taking a look at other markets outside of Silicon Valley. Per our Texas report, with about $1.9 billion in total deal volume in 2018, Colorado doesn’t quite have the momentum of the rising Lone Star State to the south, which reported $800 million in Q1 alone. However, in comparison to Utah, Colorado startups actually brought in roughly $1 billion more last year.
Colorado’s growth has been supported in no small part by seed and early-stage investors. According to Crunchbase, more than 90 percent of all 309 deals in 2018 were directed toward seed and early-stage startups.
Toby Krout of Boulder-based Boomtown Accelerator, the most active investor in Colorado startups since the start of 2018, told Crunchbase News the venture community at the seed stage has “exploded” over the past few years.
“Boomtown started a little over five years ago. At the time, there was one accelerator in Colorado, but I think that was TechStars out of Boulder. Now I think there’s 10 in Boulder alone,” Krout said.
Startups run the gamut of industries in Colorado with particular growth in fintech, crypto, IoT, artificial intelligence, aerospace, and health tech according to Michael Bevis who runs the Innovation and Entrepreneurship initiative for City of Denver’s Office of Economic Development.
“Denver itself is pushing a little over 3 million people now. So, you know, it’s certainly growing, and it’s a thriving community,” Bevis said.
“There’s such a broad ecosystem of general technology companies that are really starting to flourish here,” he said.
Some of the growth stems (in part) from large tech companies like Google, Twitter, Facebook, Amazon, and Microsoft, which have all opened additional offices in the state.
The movement of large tech companies to Colorado began with Google about 15 years ago, when the giant acquired Boulder-based @Last Software, developer of SketchUp, in 2006. The company now has a campus of thousands of employees, said Foundry Group Managing Director Seth Levine.
“I think it helped put Denver and Boulder on the map as a secondary, or another location for a lot of these large tech businesses,” Levine said.
Huge recruiting spends by these large companies have made them a natural net importer of talent to the state, said Levine. Further, their presence makes smaller startups in Colorado a more attractive option for tech talent wanting to stay in Colorado long term and move on and up.
Boulder-based Foundry Group, for its part, is a prolific investor both inside of Colorado and in the U.S. and Canada as a whole. It’s founding members actively contribute to building entrepreneurship in Colorado through various channels.
The obvious other selling point for the state is lifestyle. Colorado’s culture of working hard and playing hard attracts talent from across the country, according to literally everyone we interviewed.
“Maybe that’s a sad fact, but the reality is, most people move here because they want to be here, they’re excited about it, and they’re really enthusiastic,” said Lewis who relocated his first company from Boston to Colorado. Since then he’s launched another company and started a family in the state.
“I think that one of the reasons that Colorado is such a good first market is because a lot of people here have had the experience of being the new person–having to network and meet new people and find their way in their new place. And that’s a direct result of Colorado being such a net importer of talent,” expressed Levine.
Maybe it’s the crisp air, or the fact that rock climbing, snowboarding, and hiking opportunities abound, but engineers tend to stay at Colorado companies longer than in San Francisco, said Levine.
“People aren’t just jumping around to their next great company, they tend to stick with something for a little while and see it out, which I think is ultimately helpful and is one of the reasons that startups are thriving,” Levine said.
Norris echoed that sentiment.
“Our investors were blown away with our ability to attract talent to relocate to the Denver area…we’ve been able to attract and keep a pretty deliberate, extremely low employee churn rate,” he said.
Always Room For Improvement
Rocky Mountain and Silicon Valley firms like Bessemer Venture Partners, Insight Venture Partners, and New Enterprise Associates, have led significant deals in the state but there is room for improvement.
“It’s when companies start to get to later rounds and larger dollar amounts in the $20 to $30 million plus range that companies are a little bit frustrated,” said economic developer Bevis. “They feel like it’s not easily accessible here, and they’re having to go to San Francisco, Boston, or New York or wherever it happens to be.”
Beyond capital, tech companies may also end up facing some of the same challenges as Bay Area companies.
“[The expansion of public companies] has been great. It’s brought us great talent, great wage increases, and a much more thriving ecosystem,” said Faction’s Norris. “Definitely, [in terms of] talent, at some point it’s going to get harder and harder around here. In the IT sector, we’re almost at a negative unemployment rate.” But he added that it hasn’t hit that breaking point yet.
Levine told Crunchbase News that there are concerns over available and affordable housing, and that the tech community in Colorado, like many industries and regions around the country, is also confronting diversity issues.
But Colorado VCs and entrepreneurs are confident in the ability for the tech community to tackle these issues head-on and to help each other out in the process.
“You will probably not find a more collaborative community in the startup sector anywhere else in the country,” said Bevis. “Every single company that you talk to you here, especially ones that have had experience in the Bay Area, for example, will say that they’ve never been anywhere where people are so willing to help each other out.”
So far that collaborative attitude seems to be working.
Top Featured Image: Dom Guzman
Editorial Update: The recent rounds chart has been updated to reflect that Faction’s recent round was a Series B+, not a Series C.