In­vestors are ready

Com­pa­nies find­ing ven­ture cap­i­tal in lieu of mar­ket fund­ing

The Denver Post - - BUSINESS - 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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