Fewer 'angels' rolling the financial dice in what once was fertile entrepreneurial region

In a region that breeds entrepreneurs and small business, some are concerned that Colorado is seeing fewer dollars provided by venture capitalists for startup businesses.

According to a recent MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, while venture capital funds are increasing nationwide, the Centennial state saw its second consecutive year of declining funds.

In 2007, national venture capital investing hit a six-year high at $29.4 billion, the highest yearly investment total since 2001.

Compare that to the $564.2 million of investments in Colorado-based companies and the roughly 15 percent decrease from the year before.

The matter is concerning for individuals looking to start companies, some worried that investors are worried and still hesitant from the tech fallout in the early 2000s as well as a lack of organized funding groups within the region.

February was Innovation Month at Colorado State University with events to help startup companies work on business plans, including securing funding.

The series of events throughout the month, sponsored by CSU Ventures, addressed a problem many people are already aware of.

"Capital is available in Colorado, but not plentiful, and there are essentially no organized capital sources - venture capital or angel investor groups - in Northern Colorado," said Henry Nowak, director of CSU's Center for Entrepreneurship.

The center helps not only students with entrepreneurial endeavors but also helps technology-based or high-potential companies to further develop ideas to "functional and financeable businesses," Nowak said.

Steve Schmutzer, founder of Fort Collins-based Firefly Medical Inc., suspects the money is out there but venture capitalists are hesitant to hand out funds.

"The fact remains that there is a lot of money tied up in VC firms these days," he said. "I suspect that many of the VC companies are still dealing with a bit of a hangover from the tech or dot-com bust of the past, and everyone's a little jumpy about being 'the first to move' on any new opportunity."

Fort Collins and Northern Colorado are known to produce strong entrepreneurs, so what does a lack of available venture capital mean for the future of creative, ambitious people looking to create businesses?

Schmutzer has noticed the decreasing availability and unwillingness of venture capitalists and he can sum it up in one word: concerning.

"We are enjoying very successful presentations to some of these (venture capital) organizations, and we are receiving some considerable applause for how well-prepared and fine-tuned we are as a company right now, but this has not necessarily translated into any investments from these VC firms into this company," said Schmutzer..

Firefly Medical, which came to fruition in early 2006, redesigns medical equipment such as IV poles to make them more durable and functional.

There is no shortage of creative minds like Schmutzer's in Northern Colorado.

Fast Company magazine named Fort Collins as one of the 30 Fastest Cities to Work, Live and Play in July 2007, ranking Fort Collins with world business leaders such as Toronto, London and Shanghai.

The reason?

Inventors in Fort Collins generate 11.45 patents a year per 10,000 people, which is almost four times the U.S. city average, according to the magazine.

So why are venture capitalists hesitant when the region produced a significant number of new products?

"Typically, a true VC firm seeks to reduce risk, and if possible, to virtually eliminate it before they jump in. As a result, a true VC firm tends to invest when a company is already in revenue-producing mode," Schmutzer said.

"By this time, many companies don't want to deal with some of the classic vices and controls of formal VC money, especially when more palatable funding options may now exist for these startups."

It's because venture capitalists want a company with the lowest risk possible since they are in it for the money, said Jennifer Anderson, a CSU professor and founder of Food Friends, a company that creates education tools to help overcome finicky preschool eaters.

Initially, Anderson and her husband were able to front the money to get the company going, but she's looking into government funding programs such as the Small Business Innovation Research program (SBIR) and the Small Business Technology Transfer program.

The programs through the federal government have set aside more than $2 billion to help fund various private business startups.

Businesses that qualify for SBIRs can potentially earn up to $100,000 for the first phase of the program and up to $750,000 for the second and third phases.

Anderson prefers that route to a venture capitalist.

"(Venture capitalists) are so difficult and their expectations are always worried about the bottom line. They're not interested in whether I'm doing great things with preschoolers," said Anderson who is traveling to Washington, D.C., this week to present her work at national conferences. "I don't want them to tell us what we're going to do. I don't want to have people looking over my shoulder."

On a much grander scale, ICE Energy in Windsor managed to get through its first few years on $10 million in investments, but the core founders of the company, which focuses on energy storage, had to put up the money to initially fund patents and ask friends, family and "Rolodex relationships" for help said CEO Frank Ramirez.

"This is not a local lifestyle business," said Ramirez, who once owned an investment bank. "Its reach is global; the vision is global."

But there are resources within Fort Collins and the region to help entrepreneurs solidify business plans and come up with ideas for financing their ventures.

In addition to CSU's Center for Entrepreneurship, the newly restructured nonprofit Rocky Mountain Innovation Initiative works to help startup businesses in the region, including the challenge of finding capital.

"Venture capital has been extremely tight, if any during this period," said Mark Forsyth, director of RMII of the availability of funds after the tech industry fallout from 2001-2006.

But Nowak has hopes for entrepreneurs and their funding woes.

"Angel investors are trying to organize up here in Northern Colorado and get linked into similar organizations along the Front Range," Nowak said. "We are well-positioned to be at the center of innovation along the Front Range."

{}5 tips on finding venture capitalists

{}> Do some research. Identify the most likely candidates by asking your accountant, banker and lawyer.

{}> Keep an open mind - potential investors may be anywhere.

{}> Surf the Web. Good places to start are www.nvca.org, the Web site for the National Venture Capital Association

{}> Make presentations at venture capital forums or fairs.

{}> Check your library or the Web for such references as Pratt's Guide to Venture Capital Sources and The Directory of Buyout Financing Sources.

{}Source: SCORE, Counselors to America's Small Business.