The Denver Post

Investors are ready

Companies finding venture capital in lieu of market funding

- By Tamara Chuang

With the stock market in the pits, private companies are looking elsewhere for D’s and E’s. And they’re finding investors ready to fund additional rounds of venture capital.

In Colorado, the number of later- stage deals — such as digital- health firm WellTok’s Series D and E last year, its fourth and fifth funding rounds — has climbed in the past three years, according to The Money Tree Report released Friday by Pricewater­houseCoope­rs and the National Venture Capital Associatio­n.

“Companies are going to generally wait till later in their life cycle and have a proven track record of a business plan or profitabil­ity,” said Rob Ward, a PwC partner who oversees the Colorado region. “In the dotcom market, these companies would have gone public a lot earlier at lower valuations. Today, they’re waiting.”

In 2015, 24 percent of Colorado’s 87 venture capital deals were considered laterstage, but this group captured 43 percent of the $ 782.6 million in funds that were doled out.

Later- stage companies tend to get more money per round because they are farther along in their business. But later- stage doesn’t mean a company is ready to go public, said Peter Roshko, with Boulder Ventures in Boulder.

His firm was among several investors that last month funded $ 47 million into DatAvail Corp., a Broomfield database services company. It was Dat Avail’s fifth funding round, or Series E.

“Although growing nicely, it is also not yet at a size where we would consider an IPO,” Roshko said in an e- mail. “They did not need the capital to keep going.”

DatAvail is cash- flow- positive, and some earlier investors wanted to cash out, he added.

“If you have a high- burn- rate, late- stage private company that the public market will not accept, you are forced to raise private capital or cut back,” Roshko said.“We try to avoid those kind of deals.”

Last week, venture research firm PitchBook declared that the U.S. venture capital market had peaked.

The surge in U. S. venture funding has created a plethora of unicorns, or companies valued at more than $ 1 billion.

Uber, the top unicorn, began looking for $ 2.1 billion for a Series G round last month, which would value the company as high as $ 64.6 billion, according to a Bloomberg news report.

“The significan­t inflation in expectatio­ns

and dollar amounts at such a nascent stage appears to be getting a pushback from investors and necessitat­es a correction in round sizes and valuations,” said the PitchBook report.

Colorado ismore protected, said PitchBook analyst Garrett Black.

“What’s interestin­g about Colorado to me is the deal flow, compared to the national trend, doesn’t appear to be slacking off at all in 2015,” Black said. “That’s probably more of a reflection of the Colorado startup scene, the ecosystem is more insulated from national trends.”

The MoneyTree report, based on data from Thomson Reuters, shows that Colorado deals declined in 2015.

For the year, Colorado had 87 venture deals and pulled in $ 782.6 million of venture funding, a slight decline from the strong $ 817.4 million in 2014, said Ward, with PwC.

“My view is that 2015 shaped up to be a solid year, given the economic climate. With the growth in Colorado and a business- friendly governor, things were very positive for 2015,” Ward said. “We ultimately ended up as No. 10 across the states in terms of dollars. For deals, we were No. 8.”

For the fourth quarter, Colorado companies raised $ 271.7 million, down from the prior year’s $ 342.6 million, according to theMoneyTr­ee report. Deals for the quarter rose to 26, from the year ago’s 22.

But not every deal makes it into the MoneyTree report.

Ibotta, the Denver- based shopping app, raised $ 40 million from private investors last fall — none from private- equity or venture capitalist­s. The inclusion of that deal would have pushed the value of MoneyTree’sColorado 2015 total above the prior year’s recent record.

“When you have a very exciting business, the people most knowledgab­le about your business are often your existing investors and board members,” said Bryan Leach, Ibotta’s CEO and founder, who still did the due diligence of talking to about 40 venture/ investor funds.

Ibotta’s investors include Jim Clark, who founded Netscape and Silicon Graphics, and Thomas Lehrman, who served with the U. S. Department of State as director of the Office ofWMDTerro­rism.

“They’re willing to make big bets. Whenthey sawthe trajectory our companywas on, they didn’t want to give that ( investment) opportunit­y to outsiders,” Leach said. “We were able to get the deals done very quickly and on much more favorable terms.”

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