When Sid Krommenhoek co-founded Zinch out of Utah in 2006, venture capital was hard to come by in the state. Yet the company managed to raise a seed round from a local investor in 2007. However, that didn’t work out as planned for the two inexperienced founders.
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“We found ourselves in a very uncomfortable situation a few months into the investment.” Krommenhoek recalled in a phone call with Crunchbase News.
The team ended up negotiating with their investors to give back the money they had raised, plus 10 percent. Afterward, they raised again, this time from different investors, and when it came time to scale up, add engineering talent, and raise again, the company moved to San Francisco.
Paying back investors is not a common tale, but the story of entrepreneurs moving to Silicon Valley from Utah (and other places, for that matter) was commonplace back then, said Krommenhoek. Now, times are changing.
When he co-founded Lehi, Utah-based early-stage venture firm Peak Ventures in 2014, the ecosystem was beginning to gain momentum and, thanks to returning entrepreneurs like him and others that stayed home, it hasn’t stopped.
Last year the venture ecosystem birthed two high profile IPOs — Pluralsight and Domo— and the massive $8 billion acquisition of Qualtrics, which turned our eyes here at Crunchbase News directly to the Beehive State. In an effort to figure out what’s fueling its activity, we explored the numbers and spoke with entrepreneurs and VCs that have seen, and taken part in, the rise of Silicon Slopes.
Take a look:
In 2014, companies in Utah raised a known total of more than $1 billion, according to Crunchbase–a historical record and triple what companies in the state pulled in two years earlier. In the immediately preceding year, one $540 million round for Vivint Solar, pushed that total up to almost a billion, but 2014 was a big year for startups all around, with 152 deals compared to the 90 deals closed in 2013.
In 2015, venture volume remained high, with startups banking a known total of more than $1 billion for the second time across 124 deals. That momentum carried Utah’s venture scene into subsequent years, with dollar volume remaining above the $500 million mark and peaking again in 2017.
So far in 2019, more than $340 million has been directed toward startups in Utah, per Crunchbase, with business management software company Divvy picking up a $200 million Series C at the end of April.
The overarching industry theme is, by and large, B2B enterprise SaaS applications, with companies also growing in spaces like healthcare IT and other categories.
Founders and VCs in Utah say current venture activity and the state’s business culture is in large part rooted in the legacy of tech companies past.
“You had these great pioneers, like Novell and WordPerfect several decades ago, then you roll forward to kind of the next generation of great companies, which included Omniture and Altiris,” said Utah-based Pelion Venture Partners’ Blake Modersitzki. It’s also notable that Oracle, Adobe, Google, Facebook, and others have acquired startups or built out large footprints in Utah, further contributing to the rise of entrepreneurship and tech in the region.
Those legacies combined with the lack of access to capital gave rise to tech companies like Qualtrics and Pluralsight, which relied heavily on operational efficiency as the guiding metric for growing successful businesses. In fact, these companies were bootstrapped for years before the executives decided to raise significant venture capital for the first time in the early 2010s.
By the time Qualtrics was acquired and Pluralsight went public last year, they had collectively raised almost $600 million. And Domo, founded by Josh James (who sold his previous startup, Omniture, to Adobe in 2009), raised nearly $690 million during its life as a private company before hitting the public markets last year. That capital came from venture heavyweights in Silicon Valley like Accel, Insight Venture Partners, Benchmark and others. The attention had ripple effects for rising entrepreneurs in the ecosystem.
“I remember the day when it was very difficult to get follow on capital to come into the state of Utah,” Modersitzki told Crunchbase News. “Today, that’s not so much the case.”
Eric Rea, who cofounded Podium in 2014, told Crunchbase News that following its initial seed investment from Peak Ventures and Kickstart Seed Fund, he and his cofounder were unsure of their ability to raise again.
“We honestly kind of thought we tricked them into giving us money in the first place because we were these two inexperienced founders with a great idea and a lot of drive, but not a lot of experience,” Rea recalled.
But outside investors becoming more interested in Utah changed that. Podium went on to raise a $32 million Series A in 2017 and a $60 million Series B the following year from investors including Accel, Institutional Venture Partners (IVP), Google Ventures, Y Combinator, and others.
“Today, it’s so much different. Every firm has a person or two that’s dedicated to Utah,” said Rea about Silicon Valley’s interest in the state. “VCs know that Utah is on the map. There’s no question now.”
That sentiment is confirmed by our previous reporting. Mary Ann Azevedo spoke with Bay Area-based VCs last year about the opportunities in the state. Sequoia Capital Partner Bryan Shreier told her that Utah has “some of the most promising startups that have launched in the country.”
Investing From The Inside Out
While outside investment has bred follow-on opportunities for many startups, venture growth has risen at the local level, too. Pelion Ventures invests in early-stage companies across the United States, but according to Modersitzki while the percentage of portfolio startups that were based in Utah hovered around 20 percent from 2002 to 2012, it has increased to about 40 percent since then.
“The tech ecosystem has grown so much. And the value proposition to investors and growth as a primary investment thesis has been proven out a number of times now,” said CEO Dan Burton of Health Catalyst. He pointed to one of his company’s investors, Sorenson Capital, a private equity firm that has raised funds for venture investment at earlier and growth stages. Sorenson Capital’s Managing Director Matt Marsh believes being a local investor provides the firm with a unique position.
“For our sophisticated counterparts, the ‘secret’ of Utah has been out for a long time,” wrote Sorenson Capital’s Matt Marsh in an email to Crunchbase News. “While we welcome the benefits of more capital providers turning attention to our state, we feel very fortunate to be positioned locally in a way that resonates in a profound and differentiated way.”
There are a lot of aspects of Utah that are attractive for entrepreneurs, and the VCs that fund them.
Much like in Colorado, operational costs are not as high in Utah, which is an attractive feature for companies and investors. There’s also a sense of work-life balance, which many say has led to lower employee attrition rates compared to Silicon Valley companies. Finally, the founders and VCs we spoke to all pointed to one aspect of Utah that is driving entrepreneurship beyond capital, costs, and balance: community.
The founders that have paved the way for venture investment in the state are heavily invested in the success of the Utah tech ecosystem as a whole. This is exemplified in Silicon Slopes, an entrepreneurial organization led by those pioneers which serves as a local network for entrepreneurs seeking support.
“I actually could go and get advice from Josh James from Domo, or Aaron Skonnard from Pluralsight, or Todd Pedersen, the CEO of Vivint,” he explained. “They were happy to spend a couple of hours with me at any point, which I think is very, very rare.”
This supportive culture runs counter to what some consider to be a much more cut-throat culture in the Bay Area. This further solidifies for many budding entrepreneurs in Utah that they don’t have to leave to be successful. In fact, it may be better for them to stay.
According to Pelion’s Modersitzki, who sits on the advisory board of Silicon Slopes, the number of people that attend the organization’s annual conference has increased from about 500 to nearly 25,000 in just a few years.
“There is always a dandelion effect as success breeds success,” wrote Medici Ventures President Jonathan Johnson in an email. “Young entrepreneurs who cut their teeth on the leadership at Qualtrics, Pluralsight, and Domo will be leaders in the next generation of successful tech startups on Silicon Slopes.”
And with the Qualtrics acquisition, the Pluralsight and Domo IPOs, and other startups like Canopy, Podium, and Lucidchart gaining significant momentum, it’s likely that time will give way to opportunities for new innovators. And with more investors shining a spotlight on the state, we can expect a lot out of those rising founders.
Illustration Credit: Li Anne Dias