After attracting a $15 million investment round last December, VictorOps discovered an unexpected bonus: an uptick in applicants for tech jobs at the company, which had struggled to compete with other startups for good help.
“For whatever reason, we’ve reached a position in the Colorado market where we are seen as a company that is going to succeed but we’re still early enough that you’ll get that startup experience,” said Todd Vernon, co-founder and CEO of the Boulder firm that built software to help companies manage their IT needs. “It’s because we are at a sweet spot. That’s my best guess. For some reason, we have a pretty healthy pipeline (of applicants). And we’re hiring. That helps.”
VictorOps, which has added 15 of its 60 employees since November, is also among a growing number of Colorado technology companies maturing beyond startup mode.
Even as many startups fail, dozens of others are attracting millions in venture capital, hiring like mad and giving hope to the many other founders starting a venture of their own here.
Creating a technology ecosystem where startups grow into much larger companies has been a dream of local leaders for years, long before Colorado had four cities in the nation’s top-10 startup cities in 2013. Today, the Denver region sees regular interest from out-of-state investors, a growing population of new workers and a record number of new business filings.
“In 2012, we had nine tech and startup Meetups a month. Today, there are over 100 in the same city,” said Erik Mitisek, the state’s chief technology officer, who previously served as the Colorado Technology Association’s CEO. “There are just a lot more resources, like the Commons (on Champa, a Denver facility for local entrepreneurs) and BuiltIn (a tech job portal). You’re starting to see a lot more mature aspects of an innovation economy that are not only allowing startups to grow, but are attracting the energy of outsiders as well.”
There was some strategy behind this. Organizations such as Blackstone Entrepreneurs Network Colorado sprung up three years ago and immediately began nurturing potentially fast-growing companies that could one day top that ecosystem.
The chosen get mentoring and access to a network of more than 270 advisers, which includes successful entrepreneurs such as Foundry Group’s Brad Feld and Zayo Group’s Dan Caruso. Blackstone even set up a system to link member companies to local and out-of-state talent who want to work at a high-growth startup.
When Blackstone, or BEN, queried its members on behalf of The Denver Post, about 15 companies responded. All the companies, which employ between five and 650 people, plan to increase staff this year, with most estimating a 20 to 30 percent growth rate. The majority said funding has made it easier to attract technology talent.
“There is no question there is still a talent-grab environment out there, and at the same time, specifically, young workers want high-growth, tech-based-company job opportunities and have plenty of options with (growth) companies,” said Greg Greenwood, BEN’s executive director. “Even younger companies (such as Apto, CirrusMD, FlouroFinder, Red Canary, Cartasite and Trelora) at $15 million or less in raised capital are finding it easier to hire for their open positions.”
In the latest roundup of venture capital deals, the state ranked fourth-highest nationwide for the amount invested in local companies in the first quarter of the year, according to the MoneyTree Report by PricewaterhouseCoopers LLP and CB Insights. Typically, Colorado is barely in the top 10 or not at all because dollar amounts are much less than deals made in Silicon Valley or New York. PwC analyst Rob Ward attributed the solid quarter to the region’s overall business environment growth, organic growth of startups, companies moving to the state and the support of local universities and government.
“We have seen Colorado be in and out of the top 10 both in the number of deals and the number of dollars (total funding) for the past couple years,” Ward said. “This was a great quarter for Colorado.”
Since it started four years ago, ProtectWise, a Denver cybersecurity firm, has counted Silicon Valley venture firms among investors. The company added $25 million in a fourth round in January and ramped up hiring, adding 20 of its 90 employees in the past three months. And out-of-state interest from investors and workers is only growing, said Scott Chasin, the company’s co-founder and CEO.
Chasin has seen part of this before. In 2002, he co-founded MX Logic, which was acquired in 2009 by McAfee Inc. for $140 million. The difference between last decade and this one?
“There’s an actual community. The talent is here now,” Chasin said. “The pool is much larger, the focus is much larger and I think this myth of Colorado being a place where you work to live, versus the Valley or other places where you live to work, I think that’s diminished greatly because there’s been a lot of success in the state.”
But turning Denver into a true tech ecosystem where big companies spawn and support new ones is still a lofty goal.
Many of the last decade’s notable startups have since been acquired. Oracle snapped up Westminister-based Datalogix in 2014, Canadian telecom Shaw Communications bought ViaWest in 2014 and Vista Equity Partners acquired Ping Identity last year. Currently, Louisiana-based CenturyLink is finalizing a deal to acquire one of Colorado’s biggest companies, Level 3 Communications in Broomfield.
“I think everybody is rooting for one of our Colorado-born companies to be a longstanding, sustainable, tent-pole company able to scale,” said Mitisek, who runs the entrepreneurial Project X-ITE at the University of Denver. “… We’re really good at growing middle-market companies.”
Of course, this new era of midsize startups should be expected, as the region has become one of the best places to start a business in recent years. Though many startups failed, others figured it out and bloomed.
Techstars, the Boulder tech accelerator that helped kick-start email heavyweight SendGrid and toy-robot maker Sphero, said that of the more than 900 companies that went through its program, 10.8 percent have failed. Another 11.6 percent were acquired. But 77.9 percent are still active and, altogether, have raised $3.1 billion since 2007.
“There are obviously ups and downs. (Venture capital) is cyclical,” said David Gold, a managing partner with Access Venture Partners, which has invested in other area midlevel Colorado companies such as education-video site Craftsy and cybersecurity firm LogRhythm. “The nature of Colorado’s market is that it’s still small compared to Silicon Valley. It doesn’t take many companies to cause a significant change in aggregate investment in a quarter — up or down.”
Many of the big funding rounds are at companies that previously raised sizable amounts. Last August, for example, LogRhythm raised $50 million but had previously raised about $70 million. Consumer rebate app Ibotta, which hired 100 people last year, raised $40 million in 2015after collecting $20 million the prior year.
“The thing to look for is, ‘How much funding has it raised prior to that?’ Take it in context,” Gold said. “… You obviously have companies that don’t succeed, and disappear. But if a certain number of companies get funding, you’re building a base. The momentum continues to build.”
There’s still a tech worker shortage nationwide, according to job-data firm Challenger, Gray & Christmas. But at least for this growing group of midsized startups, the difficulty of finding talent is easing. GoSpotCheck, a 6-year-old Denver software company that helps retail brands make better decisions based on their own data, said its $16.5 million investment round last September helped with critical positions.
“It helps the most with those senior hires — the people who aren’t as willing to take a risk on a company that isn’t well capitalized. Once you get a big name brand to write a check, that’s a signal that there’s confidence in the company,” said Matt Talbot, CEO and co-founder. “We just brought in a VP of sales. That was a critical hire. And we made what I’d call a handful of senior engineering hires. Super experienced, and they brought a lot to the table. We wouldn’t have been able to recruit them previously.”
The company has added about 25 of its 95 employees since fall and plans to hire another 25 to 35 people this year. It had previously raised about $9.5 million. Attracting coastal investors brings a legitimacy to startups such as GoSpotCheck, but it’s also meant letting go of that label.
“We’re still a startup at heart,” Talbot said. “I guess we’re classified as a growth company. But it’s a blurry line for sure. Once you get over 50 people, that begins the shift to ‘we’re a growth company, not a startup.’ By the time you get to 40 to 50 people and raising bigger rounds of investment dollars, you have a model that is working. Startups are still searching for what works.”