When Colorado Springs-based Cherwell Software announced it had secured $50 million in new backing from a global investment firm, CEO Craig Harper said the funds "will continue to drive phenomenal growth and fulfill our goal of being the best service management solution on the planet.”
That $50 million, announced in February, was clearly a big deal for Cherwell, but it may have been an even bigger deal for the city of Colorado Springs, where the company was founded in 2004 and maintains its headquarters. It marked the largest venture capital raise for a Colorado Springs-based company in 17 years.
Colorado Springs is the second largest city in Colorado, with a population of around 450,000, but when it comes to entrepreneurship and startup culture, the Pikes Peak region is stuck playing third fiddle to Boulder and Denver.
In the four-year period from 2013 to 2016, Colorado Springs startups raised only $11.4 million in venture capital, a tiny percentage of the $3.55 billion invested in companies across the state in that same period, according to a Colorado Springs Gazette analysis of data in the MoneyTree Report from PricewaterhouseCoopers and CB Insights.
Venture capitalists aren’t the only ones hesitant to test the waters of the Colorado Springs startup pool. Angel investment activity has also been limited, despite the efforts of some major boosters.
For example, Dr. Ric Denton, a Silicon Valley veteran and the director of High Altitude Investors (HAI), a group of angel investors in the Pikes Peak region, reached out to the Rockies Venture Club (RVC) three years ago. Rockies Venture Club, founded in 1985, is the longest running angel investment group in the state, and Denton was looking for their support.
“They wanted more angels and a more active group,” said David Harris, operations director with the RVC.
“We put on classes around exit strategies and valuations and did our half-day pitch academy workshop in the Springs,” Harris added. “We also did a number of events to bring the community together.”
Three years into that partnership, the results aren’t turning heads in the startup world. Of the approximately 80 companies per year invited to pitch to the RVC, 18 to 20 receive some level of investment.
“We’ve pitched quite a few Springs-based companies, but we haven’t funded any,” Harris said.
“One of the challenges in the Springs is, you have an amazing community of investors and a great group of companies, but it’s hard to break down the barriers between them,” he said. “Our plan going forward is to leverage things like the local startup week with our local partners. We want to bring in more investors though local ambassadors.”
“The first year, there were three of us organizing it in two weeks,” said Michelle Parvinrouh, Peak Startup’s executive director. “We threw it together.”
This year’s startup week, which is set to run Aug. 21-25, is modeled on the life of a startup. The full-day workshops start with ideation, then cover what to do once you have the idea, and continue into launching, gaining traction, scaling and exiting.
“We wanted to retain the feel of traditional startup week, but make it more impactful,” Parvinrouh said.
That strategy stemmed from struggles Peak Startup has had with the culture in Colorado Springs relative to other hotbeds of startup activity.
“When I was in Denver, I was so overwhelmingly surprised and pleased by how much people were willing to help each other,” said Parvinrouh, reflecting on her eight years in and around the Denver startup community. “People just got it.”
“Employers in Denver understand that if an employee wants to take a week off for startup week, they will benefit,” she added. “Here, employers don’t see that as much. That’s why we are trying to do those day chunks.”
A solid foundation
Parvinrouh also points to a lack of understanding about the basic principles of a startup.
“People always want to harp on that fact that we don’t have the resources, but we do. We have all the critical pieces; we just need to leverage them," she said. "We need people to understand how it actually works, and not just from what you learn watching 'Shark Tank.'"
Those critical pieces include new coworking spaces, such as Epicentral Coworking, where Parvinrouh works; the new state-backed National Cybersecurity Center; the Quad Innovation Partnership; and, of course, Peak Startup itself.
Those organizations, which are also teaming up with university and military institutions in Colorado, aim to build a solid foundation.
“We have a low cost of living, affordable office space, and a low cost of labor,” said Hannah Parsons, chief economic development officer for the Colorado Springs Chamber and Economic Development Corporation. “Those things are all attractive to startups, especially now that people are saying Boulder is becoming too expensive a place to bootstrap.”
Still, the familiar challenge remains.
“People will always tell you that it’s difficult to access capital,” Parsons said. “There’s an incredible amount of wealth in our region, but it’s not always deployed in startups.”
“We live in a world dominated by nonprofits,” Parvinrouh added, noting the more than 3,000 registered nonprofits in the Colorado Springs region. “So wealthy people are used to giving their money away [instead of investing it].”
Accelerating the process
In recent months, yet another new initiative has come together to help bridge the gap between startups and potential investors. Four local entrepreneurs – Vance Brown, executive chairman and co-founder of Cherwell Software; Josh Bolin, CEO of Bridgehouse Media Group; Betsy Brown, co-founder of The Classical Academy; and Chris Franz, serial startup founder and president of Peak Startup – are creating Exponential Impact, a new accelerator for security technology and leadership development.
According to Brown, the team is currently raising the money for an Exponential Impact Fund, which will be used to invest in participating companies, with an eye on inviting a first group to the Springs in early 2018.
“We want to leverage what we’ve been great at in the past, with the military bases, defense companies, the universities and now the National Cybersecurity Center,” Brown said. “Our goal is to bring great technology companies from around the world to Colorado Springs.”
Brown was one of the chief architects of Cherwell’s success story in the Springs. Serving as CEO from 2004 to 2016, he oversaw the company’s global expansion, with offices in the United Kingdom, Germany and Australia, as well as Tampa Bay, Seattle and Denver.
Relative to those places, “[Colorado Springs] is known for [Department of Defense] contracts and more legacy-type technology,” he said. “So I don’t think we’ve had the reputation of being a high-tech center. My experience is that we have a phenomenal high-tech community, so we need to improve our reputation.”