Friday, November 30, 2012

Angel Investing and Venture Capital in Colorado

This past May, the Silicon Valley Center for Law, Technology, and Entrepreneurship at the University of Colorado released a report titled Bringing Angel Investing Out of the Shadows.  The report made a number of interesting points about the role of Angels in Colorado’s startup ecosystem.   One argument that I found particularly interesting was that Angels in Colorado face additional challenges compared to states with a higher density of locally-based VCs.   According to the report:

 "Angel investing in Colorado faces a 'bridge to nowhere' problem: investing becomes riskier as the scarcity of Colorado-based VC funds means that more Colorado startups either fail or move to the location of the out-of-state VC that funds them."
Additionally, the level of VC funding in Colorado has declined steeply from a peak of almost $4B in 2000 to an average of less than $600M per year from 2002 to 2011 according to data from Price Water House Coopers.   Some of this decline is likely related to the fact that Colorado has a smaller number of in state VC firms than coastal states. 

The problems described above do need context.  Colorado has a vibrant startup scene with concentrations in Boulder County and lower downtown Denver among other places.  The PWC data also shows that Colorado ranked sixth among the fifty states in total venture capital invested between 1995 and 2011.  However, Colorado is only the 22nd most populous state as of 2012.  On a per capita basis, Colorado had the tenth highest venture funding among the states on average between 1995 and 2011 (again per PWC data).  Despite the issues cited in the Angels paper, the state does appear to “be punching above its population weight” in venture funding. 

However, in such a nationally and globally competitive environment, it's clearly important to focus on making structural improvements to early stage capital access for startups and retaining them in Colorado as they grow.  

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