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After Drought, Venture Capital Flowing in Denver

Joe Zell is leading Denver's latest VC charge.

AlchemyAPI CEO Elliot Turner touts the benefits of local funding.

Recent research shows Colorado companies pulled in roughly $560 million in venture capital last year. Although Boulder continues to lead the state in terms of VC interest and activity, Denver is quickly beginning to hold its own in the race to attract high-tech startups and the VC firms willing to invest in those companies.
Elliot Turner, CEO and Founder of AlchemyAPI, knew that Denver was where he wanted to be.
Turner, a serial entrepreneur, moved to Denver in order to found AlchemyAPI in 2005 because he knew that he would be able to find the right mix of infrastructure, financing and engineering and software talent necessary to make the company a success.
"The climate here has been very conducive to growing at a very fast clip," he says.
But when AlchemyAPI began considering its first round of venture funding, most of the company's discussions were with venture capital firms on the West Coast. "It certainly dawned on us that we weren't really engaging with firms here in the state," Turner says. "We decided we should be talking to some people here locally."
The result was a $2 million Series A round of funding led by Access Venture Partners, an early-stage venture capital firm in Westminster. Turner explains that it's critical for startups and their venture capital partners to be on the same page -- which often means being in the same city.
AlchemyAPI CEO Elliot Turner touts the benefits of local funding."Choosing an investor is very much like getting married -- without any of the romance," Turner says, noting that VC firms often connect startups to networks of local investors, talent, service providers and potential partners. And if VC board members are nearby, "You can sit down and have lunch with them every couple of weeks."
"Colorado companies need to realize this as well, there are advantages to going locally," he says.
Denver VC Generating Momentum
Ten years ago, during the height of the tech bubble, Denver was awash in venture capital companies. Firms like Appian Ventures, Wolf Ventures and iSherpa Capital plowed money into the Internet and social media scene.

Today, conversely, there are only a handful of active investors in Denver -- but those in the industry agree that energy is growing behind Denver's startups and the financiers that back them.
"There's just much more momentum around the startup scene in Denver," says Ken Fugate, Senior Vice President at Square 1 Bank. "There's just a lot of stuff going on."
That momentum was enough to convince Fugate to move his offices from Boulder to Denver (1899 Wynkoop, specifically). Square 1 Bank, based in Durham, N.C., opened its Colorado branch in Boulder in 2008, but Fugate said the company decided to move the three-person office to Denver in August because "it's just more centrally located to where all our startups are."
Square 1 Bank isn't a venture capital firm, it's a bank, but it specializes in providing financial services to entrepreneurs and venture capitalists. In Denver, the company works with the likes of NewsGator Technologies, TrackVia and Roximity. Thus, Fugate has a clear view into the VC scene in Colorado.
Fugate said Boulder has long been a hotbed for VCs and startups. Foundry Group, Sequel Venture Partners and Vista Ventures in Boulder are among those building a thriving network for startup financing there.
"There have always been startups in Denver, but they've always been isolated from each other," explains Fugate. However, he says that during the past year or so -- thanks to events like Denver Startup Week and organizations like Galvanize, which is also launching a VC fund -- things in Denver are changing. "There's just been a lot of things in the past six months that have been building the momentum."
Moreover, Denver may ultimately have a leg up on Boulder, Fugate says: "The reason that the startups are moving here is because the cost of office space is more economical here in Denver than it is in Boulder." Additionally, he says that "the theory is that there is more access to developer and engineering talent here in Denver …. so it's easier to recruit."
"We'll start to see more venture capital flows to Denver in the next six to 12 months," agrees Mike Devery, a Denver-based market manager at Silicon Valley Bank, another financer of venture-backed companies.
Building The VC Network, One Piece At A Time
Peter Vogel, co-founder and CEO of Denver-based startup Plink, said the company has directly benefited from Denver's newfound vigor. Plink raised $3 million from Grotech Ventures last year.
"There's a relatively big scene here in Denver," Vogel says, nodding to the support of banks like Silicon Valley Bank and Square 1 Bank and companies like Galvanize and TriNet. "There are a number of VC firms that look specifically at the startups around here. Being part of that scene has helped us."
Plink's $3 million in Series A funding was largely a result of the work of Grotech's Joe Zell. Grotech is based in Northern Virginia but Zell lives in Denver and manages the company's investments in the Rocky Mountain region.Joe Zell is leading Denver's latest VC charge.
Zell says Grotech is on its eighth fund, this one worth $210 million, and he says the company expects to invest close to a third of that amount in companies in Colorado. 
"There's no reason that this community shouldn't be popping out 10 to 20 really interesting startups every year," Zell says. And his words carry weight -- Zell's name comes up repeatedly in discussions about venture capital in Denver because he is one of the few true venture capital investors who lives and works in the city. 
"He's been very successful and is a big champion of Denver and Colorado," says Plink's Vogel.
Zell says a number of new organizations in Denver are aiding startups. Specifically, he said Startup Denver, TiE Rockies, Colorado Technology Association and the Rockies Venture Club are among those creating networking events and areas for entrepreneurs to meet potential teammates and investors.
"As these organizations get better and better at networking these companies, it's creating the effect of having greater deal flow for these venture capitalists," Zell says.
Clarifies Zell: "There's not a gold rush here at this point, but there are a number of firms that are coming into Denver and looking at these deals."
Of course, some see little difference between the VC scene in Boulder and the one in Denver.
"I don't differentiate between Denver and Boulder in this context," says Brad Feld, Managing Director of Foundry Group in Boulder. "The two cities are only 30 minutes away and it doesn't matter whether the VC firm is located in Denver or Boulder -- it's easy to invest in both cities."

Read more articles by Mike Dano.

Mike is a freelance writer and executive editor of FierceMarkets Telecom Group.
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