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Utah: Small But Mighty In Venture Dollars Raised Per Capita

Utah wants to be known for more than ski resorts and the Sundance Film Festival.

And if venture dollars raised per capita in the state is any indication, it’s well on its way. With approximately $353 in reported venture funding per person per year between 2016 and 161 days into 2018, Utah is ranked 6th in the nation in per-capita venture dollar volume, according to Crunchbase News research.

Some argue that Utah is becoming a more viable headquarters alternative to the Bay Area due to its relatively affordable real estate, tax climate, educated population, and a culture that emphasizes hard work—hence its earning the nickname the Beehive State.

Utah also boasts of a number of young unicorns: Pluralsight, an edtech startup that successfully went public in May; online market research platform Qualtrics; cloud startup Domo, which also recently filed to go public via a rather disappointing SEC filing (see more below); and InsideSales, which has developed a sales acceleration platform.

Along the same lines, in July 2017, Forbes’ writer Alex Konrad wrote about how the state had become “cloud computing’s new capital.” In 2016, CNBC named Utah as the top state for business.

But when we look at funding figures,the state’s startup scene has more bumps in its road than you might expect. Total deployed venture capital in Utah in 2017 ($856.72 million over 86 deals) was up compared to 2016’s result, but lower than the tallies put up by 2014 and 2015. And deal volume in 2017 was the lowest in over five years. Of course, given that capital raised rose last year, we can presume that bigger deals were getting done.

Utah does not appear to be bucking the trend in the first half of 2018. Despite a few large deals having been announced since January—including the recent $60 million Series B investment in Podium—Utah startups have so far raised just $251.9 million across 25 reported deals, according to Crunchbase research.

Among the state’s largest recent deals includes Podium’s $60 million raise led by Institutional Venture Partners with participation from Accel, Summit Partners, GV (formerly Google Ventures), and Y Combinator.

Lehi, Utah-based Canopy, which offers a cloud-based practice management platform for tax and accounting professionals, announced an extension to a previously announced funding round led by NEA, bringing the total raised this year to $42 million.

Grow, a business intelligence software startup, raised a $16 million Series B that closed in February. The round was led by Toba Capital, and other backers included Salt Lake City-based Pelion Venture Partners and Kickstart Seed Fund. And Owlet Baby Care brought in $24 million in a Series B round from investors such as Trilogy Equity Partners and Pelion Venture Partners (again) .

But not all headlines about Utah companies have been positive as of late. On June 5, our editor Alex Wilhelm wrote about how Domo’s IPO filing was met with a round of incredulity that went on and on when the filing was made public last week. Essentially, the hyped company revealed that despite raising more than $700 million and its achieving unicorn status in 2015, it really doesn’t have too much to show for it beyond a lot of debt, dwindling cash and a high cash burn rate.

Yet investors are bullish on the area and its future.

Going Big While Staying Small

Sequoia Partner Bryan Schreier believes that Utah is just now scratching the surface of all its potential. He pointed out that for a relatively small state (with a population of just more than 3.1 million), Utah is home to a lot of startups.

“Despite the fact entire population of Utah is smaller than that of the Bay Area, it [the state] has some of the most promising startups that have launched in the country,” he told Crunchbase News. “In particular, the town of Provo has 150,000 people and boasts two unicorns and a number of promising companies. On a per capita basis, this is the most entrepreneurial state in the country.”

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Sequoia in recent years has invested in two Utah-based startups. It led Provo-based Qualtrics’ $70 million Series A round in 2012 and participated in the company’s subsequent funding rounds. It also invested in South Jordan, Utah-based digital recruiting platform HireVue’s Series D and E rounds in 2013 and 2015, respectively.

Schreier believes his Menlo Park-based firm is not done investing in the region.

“Utah has a long tradition of entrepreneurship but only recently have we seen the high volume of technology startup creation,” he said.”Plus, the startup environment is stronger than ever, which is evident by the number of IPOs and S-1 filings over the last few months. I think that successful companies like Qualtrics will motivate more people in Utah to start companies. ”

Insight Venture Partners also has a number of Utah-based startups in its portfolio, including Qualtrics, Pluralsight, data product Numetric startup (which was announced in October 2017), and Simplifile, a Provo-based provider of e-recording services.

Ryan Hinkle, managing director of Insight Venture Partners, believes Salt Lake City is uniquely positioned as a hotbed for innovative ideas and companies.

“The universities are churning out computer science talent. Anyone who goes on mission is well-trained in sales. You mix sales execution and good technology, and you have growing software companies,” he wrote via email. “You also have the benefit of nearly unlimited real estate as the silicon slopes corridor widens and expands. Lots of growing software companies means you can recruit anyone you want into senior positions. All of this self-reinforces the virtuous cycle of Salt Lake City tech innovation.”

NEA General Partner Chetan Puttagunta agreed the Utah startup scene is continuing to grow rapidly. NEA previously invested in cloud computing startup Fusion-io, which went public and was eventually acquired by SanDisk.

“Utah is a great place for technology talent and we’ve seen it continue to develop quickly,” he wrote via email.

Founders also have quite a bit of faith in the mountain-laden state.

Kurt Avarell, CEO and founder of Canopy, is naturally bullish on his company’s home state. He told Crunchbase News that Utah offers “a high-value business climate” that tech companies have taken notice of. For example, Adobe, eBay, Facebook, among others have a presence in the state.

“The natural advantages of the state are not only business driven, but also lifestyle driven,”  he added. “Tech workers accustomed to one hour-plus commutes, high rents, and out-of-reach home prices come to Utah where mountain biking, hiking, and world-class skiing are all within a few minutes drive — and housing prices are a fraction of the Bay Area, with more space.”

Avarell founded Canopy in 2014 after having worked as a tax attorney on Wall Street, where he occasionally took on pro bono cases that gave him insight into the inefficiencies of tax resolution and accounting software. He launched Canopy to offer accountants a practice management and tax resolution software designed to make their work more efficient by cutting down on “busywork.”

Its funding this year brings its total brought in since inception to $72 million. The startup is using its latest financing to focus on product R&D and hire sales staff. Canopy currently has more than 250 employees, more than triple the number of workers it had at the beginning of 2017, according to Avarell. Its sales have grown 200 percent year over year since 2014.

Utah’s road to increase its profile as a tech hub is not without hiccups (i.e. Domo’s S-1 filing), but if the state continues on its overall current path, it’s likely that we’ll be writing about more success stories emerging from the region.