Monday, October 25, 2010

Boulder Shouldn't Be a One Horse Town

Forbes ran an article the other day about the "TechStars Boulder’s Foundry Group Signaling Problem." In brief, they called attention to the problem faced by some TechStars companies at the end of the program. The problem? The Brad Feld or Foundry Group problem. It goes something like this: since Brad/Foundry ostensibly have their pick of the litter, if you're the founder of a startup not funded by Foundry Group, you have some explaining to do. Why? Because nearly every sophisticated investor (angel or VC) in the country will want to know two things: "What does Brad think about your company?" and "Why didn't Foundry Group invest?

Now let's be clear, this isn't a problem exclusive to TechStars companies. It's an issue that bedevils many of the startups in Colorado - even if, and sometimes particularly if, those startups are headed by seasoned local entrepreneurs. And why is this problem unique to Colorado? Because at the moment, Colorado is not crawling with alternative sources of capital. Sure, there are other VCs in town. It's just hard to find a VC that has any money to invest. Some local ventures firms have faired poorly, and have therefore been unable to attract new investment. Others have done reasonably well, but were still unable to raise a new fund. Foundry, in contrast, has "hit the ball out of the park." The first fund has performed so well, that a second fund of $225 million was recently raised, in record time. 

Incidentally, this is not a problem of Foundry's or Brad Feld's making. Brad has probably done more than anyone to put Boulder on the map from an entrepreneurial perspective. From the moment he arrived in the mid-90s he was connecting people and creating an environment that would ultimately lead to Foundry Group, TechStars, Boulder / Denver New Tech Meetup, and more. And Brad has probably been more generous in his support of other local venture capital firms than anyone could have expected. But even if this wasn't a problem of Brad's making, it can still be a problem if you're an entrepreneur, and you need to raise money.  

So what do you do if you're a TechStars company or a serial entrepreneur based in Colorado, and it doesn't look like Foundry is hot for your deal? You have three options. First, you can position your deal as one of those that lies well outside the bounds of the sorts of deals that Foundry Group funds. Look closely at Foundry's investment themes. You don't see how your deal fits into those themes? Lucky you. Tell that to the world and to every investor you talk with. Will that do the job? Probably not, but at least you'll create a basis for reasonable doubt in the mind of the prospective investor. (Remember, when Foundry didn't do your deal, the presumption for most investors looking at your deal went negative: "Hmmm, there must be something wrong with this deal because if there weren't, Foundry would be all over it.")  The other thing you should do is this. Point out that Foundry is not a regional firm. They can (and do) invest in companies that are based in Colorado. But their pitch to their investors has been that they will source deals from all over the country. And that is exactly what they do. What this means is this: there will be good companies, probably even great companies, based here in Colorado, that Foundry will not be able to fund. That represents significant opportunity to investors outside the region who are willing to fill the gap created by Foundry's (and Colorado's) capital limitations. 

Second, you can work to pull together an investment syndicate that is led by significant angels. They care far less about what Foundry does or doesn't do than most of the VCs.

Third, you can relocate. Yup. Why would you do this? Because most other places that will support startups offer more than one source of financing. The Bay Area is an obvious choice. But even Seattle and New York offer more alternatives than Colorado. Do I want to see any good entrepreneur leave Colorado. Absolutely not. But if it comes down to funding the company or coming up dry, that may be your only remaining opportunity to keep the dream alive. 

None of these alternatives is pleasant if you think you've got an incredible new tech startup that requires more than $1 million to get off the ground and you and your team are based right here in Boulder. 

I'm bullish on Colorado in general and Boulder in particular. We'll get it figured out. If you've been thinking about this problem - as I have - for the past three or four years and have come up with some new ways to solve the problem, please let me know. I'm all ears, and I'd love to help if I can. 



Alan said...

It seems likely that this problem will eventually be solved, since there's money to be made. Then the question is, how could this be accelerated?

Maybe you could target a few VC firms that would be complimentary to the Foundry Group, and pitch them on what this area has to offer. I wonder if some of the companies that have co-invested with Foundry would be candidates?

-Alan Richards

Benjamin Kuo said...

Great post! If you're open to republishing this as a guest post on, let me know ( An example is this one from Mark Solon: