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Startup or Letdown?

Colorado’s latest rural venture fund wants to be a model for the nation

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telluride valley

Telluride valley from above. 

In rural Colorado an incubator is what you use to hatch chickens. An accelerator is the gas pedal in your pickup.

Apparently, until now.

When the Greater Colorado Venture Fund announced last summer that it was “officially live” and ready to start investing in early stage companies in rural Colorado, it boasted $9.1 million in funds awarded earlier in the year by the Colorado Venture Capital Authority (VCA). GCVF declared its mission was to “create sustainable communities across Rural Colorado by investing in up to 40 startup ventures over a 10-year period.”

According to Colorado’s Office of Economic Development and International Trade (OEDIT), which assists in the management of the state’s Venture Capital Program, the new rural fund would not just benefit Colorado but would “set up a model for the nation,” creating an aggressive program for rural development using state-backed venture funds.

But some Coloradans are concerned that GVCF money will never make it to the countryside and instead will be funneled into apps, workspaces, outdoor apparel and gadget makers in affluent ski towns.

The GCVF is based in the ski town of Telluride, and it was founded by Marc Nager, head of the Telluride Venture Accelerator and Jamie and Cory Finney, who both run the tech incubator Kokopelli Capital. All three are closely associated with Brad Feld, who heads the Boulder-based software/internet investment company Foundry Group. Feld was an early investor in Harmonix, Zynga, MakerBot, and Fitbit. His net worth has been estimated at $15 million. Feld helped Nager and the Finney brothers create the GCVF as a Limited Partnership Agreement in order to qualify as fund managers and bid for the VCA monies in a competitive review.

“Having worked with the team throughout the application process,” Feld wrote in a Medium article, “the GCVF’s application embraces this fund’s national spotlight, while remaining grounded in rural Colorado communities.” Feld did not respond to requests for an interview for this article.

Nager, in Telluride last summer, before the GVCF announcement, discussed the big picture: “The mission of the fund is really pioneering new models to make venture capital work in rural America.”

And he discussed the nuts and bolts. He claimed that the organization had already had hit the road, visiting 18 different communities outside of the Front Range (which includes the metropolitan area from Ft. Collins to Denver down to Colorado Springs), taking 80 meetings, and had developed a list of about 150 companies that fit the GVCF’s criteria and a shortlist of 25 companies that “we deem really interesting,” and have the potential to create jobs in rural communities.

“We’re seeing this middle ground of companies out there that are already established, generating revenue but they can’t find additional capital that will help them grow because they don’t fit with traditional venture capital and banks will not loan to them,” said Nager. “We have no limitations on the types of companies we can invest in. We’re finding everything from software companies to outdoor recreation, hemp, ag and mining reclamation.”

State Sen. Don Coram, who represents rural counties in Southwest Colorado, was skeptical:

“We’re anxious about this funding getting to rural areas,” he said in a phone call. “We don’t need tech consultants. We need action. I will be looking closely at where this money is going. There are lots of smart people out in our rural places. They’ve managed to survive and thrive. They deserve attention.”

According to the August GCVF announcement, the fund will “have a strong bias towards companies with established revenues streams and products/services.”

Nager explained: “Would we like to invest with earlier stage companies and startups? Yes, but I think the real need in our communities is with established companies. That’s our sweet spot.”

Such bias troubles some entrepreneurs.

“That will kill money for genuine rural towns,” said a GCVF applicant who spoke to me on condition of anonymity. “Basically, what they’re saying is that startups in rural Colorado are too risky to invest in. On one hand, you get our hopes up of starting a business, then tell us we don't believe in you enough to invest in you. What we need is a policy that gives rural Colorado access to the same type of investment funds that Front Range companies get, in other words, startup money.”

“At the moment, I’m not seeing the GCVF serving us here,” said Deana Sheriff, the economic recovery coordinator for the Naturita-based West End Economic Development Corporation, which assists small rural businesses. “The fund is not really helpful for true rural startups, which require much smaller investments, typically less than $250,000. We’re not going to attract high technology and manufacturing here, and that’s what the GCVF seems to want. They want the big returns. Apparently, that’s the way the state fund is structured right now.”

Which begs the question, will past be prologue? Created in 2004 by the state legislature to administer a public investment fund that was created by selling premium tax credits to insurance companies operating in Colorado, the VCA launched a program to distribute the monies to small businesses and, in turn, create jobs in rural and distressed urban communities. The VCA selected the Boulder-based fund manager High Country Ventures to funnel the first rounds of cash to qualified businesses in the state. High Country invested in companies that were identified as rural but clearly were not: Digabit, a cloud technology firm in Englewood; medical tech companies Endoshape, AktiVax and Fitbionics in Boulder, and Nutrinsic, a biotech company in Glendale that started in Boulder, opened a production facility in Trenton, Ohio and, through a joint venture, owns a facility in China.

In a 2007 Performance Audit of the VCA, the Colorado State Auditor acknowledged the problem and admonished High Country Ventures “to increase the pace of investments in designated rural counties.” According to the audit, personnel at High Country complained about a scarcity of promising investment opportunities in rural areas and claimed that only 17 of 230 applications were from designated rural counties.

High Country’s fail came to the attention of Coram who contacted Stephanie Copeland, then executive director of OEDIT. (In January, Copeland left her post to become the CEO of the national non-profit The Governance Project.) Coram threatened to introduce legislation to turn over most if not all of the VCA funds to rural Colorado businesses. According to Coram, that’s when OEDIT and the VCA decided to issue a request for proposal (RFP) to search for a new fund manager that would focus exclusively on rural businesses.

Copeland was unavailable comment in October last year, reportedly in China on a trade visit. When she returned, OEDIT spokesperson Jill McGranahan emailed this response:

“After checking calendars, we can confirm that the first time that Stephanie Copeland spoke with Senator Coram about this issue was after the VCA had already released the RFP to find a rural fund manager - which was a coordinated activity that took time to prepare and execute. Executive Director Copeland’s discussion with Senator Coram was an update of actions already taken, not a discussion of pending legislation or a promise to rectify the problem by taking action.”

“The assertion that these actions were reactive to any external request is simply inaccurate,” McGranahan quoted a statement from Copeland.

(In January, Betsy Markey, formerly with the U.S. Small Business Administration, was named the new executive director of OEDIT by incoming Governor Jared Polis. At press time, McGranahan indicated that Markey “is very busy with the Governor's first 100 days agenda” and would not be available for an interview for this article.)

Prior to the rollout of the new rural fund, Startup Colorado, a non-profit group that organizes networking events, workshops and mentorships for small business owners and entrepreneurs, shifted its focus from the Front Range to rural areas of the state. Startup Colorado also was founded by Feld and other investors, with private and public money, originally to service growing small businesses on the Front Range.

“In 2016, a lot of things started popping up in rural Colorado,” said Jamie Finney, who works full-time for Startup as its Western Slope regional director and is a part-time advisor to the GCVF. “Small entrepreneurial communities surfaced. They realized Startup Colorado can focus more on rural Colorado, so they rebooted a rural version.”

“We are not tech focused, and that’s something I have to explain a lot,” said David Camerucci, then-managing director of Startup last year. (He has since taken a position at Ernst & Young in Ohio.) “We are really looking for entrepreneurs who have a local business that attracts dollars from outside their communities. You can probably fit almost any business into that definition.”

Since 2017, according to Camerucci, Startup “Version II” had provided funding for 30 events across 14 different regions of the state (their year-end 2018 goal was 65 events) and had worked with more than 550 people. Long range, the group hoped to fund 100 or 120 events a year.

Startup’s new managing director, Delaney Keating, lives in Gunnison. She’s an experienced small business advocate and entrepreneur who took the job in November and explained that they are currently reconfiguring the organization.

“We’re taking time to assess what we’ve learned, begin to refine our approach and remain flexible in our approach,” she said.

One of the new approaches for Startup is producing a six-part podcast series that will be formatted for public radio. According to Keating the series will “help capture some stories that are really interesting and incredible with businesses opening up with community stock options, like employee stock options, which is really an important part of the future equation.”

Keating believes there is a growing trend across the country of people who no longer want to be in urban areas, and who are moving to rural areas as a lifestyle choice, creating “lifestyle businesses” and that is what is driving rural programs and funds today, such as the GCVF. She calls it: “rural is the new urban.”

“Why is there, suddenly, so much interest in rural development? More foundations, and government organizations are serving rural across the country,” she said. “There is a lifestyle demand today, people who no longer want to be in urban areas, which are saturated. Rural areas are the next opportunity for growth.”

When the state of Colorado began its RFP search for an administrator for its rural fund, a key requirement was that candidates must have “rural investment experience and a direct rural presence.” Nager said the GVCF qualified because the Finney brothers, who lived in Boulder after graduating from the University of Colorado, are sixth-generation Coloradans born and raised in Durango, a rapidly growing small city of nearly 20 thousand people.

“Funding wise, we’re more experienced in the tech world, but life-wise we’re more experienced in the rural world,” said Jamie who recently moved to Telluride. “We both worked on a ranch in high school.”

Cory, who works full-time for the GCVF, now lives in Denver.

“Since winning this,” he said. “I’ve been spending the bulk of my time traveling around Colorado for the GCVF. Our boots on the ground approach goes a long way. Collectively our team has experience not only with startups and entrepreneurship but also in building communities and I think everyone recognizes that this program is going to take a village.”

It may take a village, but for the time being, Finney and Nager, as well as Keating at Startup, believe it will also take a hub-and-spoke approach — in other words, investing in larger towns or hubs with the hope that benefits will get spun out to smaller adjacent communities, or spokes.

“Steamboat is a great example of the hub-and-spoke approach,” said Jamie Finney. “Companies start in a place like Steamboat (Springs). It has good access to the airport and better internet access, things like that. They’re creating jobs for people who live nearby. And as a result we’re seeing companies grow in smaller towns nearby like Hayden.

“We’re not just in ski towns, but ski towns are in the mix,” says Nager. “We have so much access to resources in places like Telluride, the intellectual and financial capital that exists in these towns”

Hub and spoke, says Keating, is “the best way for us to create enough impact right now, given our resources, but it’s not the end-all be-all. There is a need to thread resources across the state. We’re challenged by small populations inside our communities. There is importance to connect across communities and bigger areas.”

At presstime, the GCVF had made six investments. Nager identified the first five as Victims Service Tracking, a healthcare software company in Mancos; Rever, a motorcycle travel app based in Eagle; MuniRevs a Dolores-based paperless licensing and tax remittance service that was founded by the former finance director for Mountain Village in Telluride; Western Rise, an outdoor apparel company in Telluride that has received funding from Nager’s TVA; and Felt, a digital greeting card software company in Telluride.

The organization also established a shortlist of about ten companies that it is “in some form of due diligence with.”

Nager wouldn’t name them, but he talked about an $8 million pinto bean energy bar company in Salida called Don’t Go Nuts and a freeze-dried fruit concern in Paonia that was on the shelves in a handful of Whole Foods stores but needed support to scale up manufacturing. Nager mentioned the GCVF was interested in some hydrology companies in partnership with Mountain Studies Institute in Silverton. Also he talked about a settling plant at a coal power plant in Gunnison that creates a silt by-product that is the perfect composition for high quality building bricks.

The GCVF wheels indeed are turning, but rather than wait for the outlying spokes to start catching up, Sen. Coram, a Republican, along with two Democratic state representatives, Barbara McLachlan and Jeni James Arndt, have introduced bipartisan legislation (SB 67) to create a Rural Development Grant Program that would provide funds to early stage rural business, the type of seed-stage startups that the GVCF has not tended to touch. The program will assist businesses that have “have raised less than five hundred thousand dollars of third-party capital and are able to provide nonstate matching funding equal to at least one-third of the grant award.” The grants are capped at $150,000 per early stage rural business per year.

Nager welcomed the news. “I'm not sure of the status and we're not formally involved in it,” he said, “but it would be a great complement to our efforts and the broader effort.”

Richard Linnett is a freelance journalist whose reporting has appeared in Politico, Business Insider, Rolling Stone, High Country News, the Village Voice and other publications. He is the author of the nonfiction books The Eagle Mutiny and The Godfather Garden. He lives in Naturita.

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