October 30, 2011 11:57 PM UTC

You want more jobs in Colorado?

•  
• by: DavidThi808

Analysis: Too many start-ups chase too little cash

The money-seekers are companies that have benefited from a tidal wave of early-stage investing in start-ups and who now need funding from mainline VC firm’s such as Gurley’s Benchmark Capital to take them to the next level. But many companies, even some that have done fairly well in their initial phase, are finding it increasingly difficult to raise the next round of cash.

…

Every year sees some start-ups that don’t make it to that next round. But this year, the situation is particularly bad, entrepreneurs and their potential backers say, simply because there are so many more young companies. And next year they expect it to get worse.

Fact #1: Venture Capital companies do a poor job at picking which companies will be winners. They still make a boatload of money because it only takes being right 20% of the time to have a really nice ROI. (And most every successful company (including Google) is first turned down by almost everyone.

Fact #2: High-tech start-ups are the most powerful new job engine on the planet.

Fact #3: The Boulder area is one of the top incubator regions in the world. There are a ton of companies there that with a 2nd round of funding would be hiring a lot of people. And that hiring will reach up to Ft. Collins and down to Denver with companies expanding around the area.

So what can the state do? What about the following? It will offer to put in 25% of any venture fund in Colorado that is managed by principals with a successful track record where the fund is limited to 2nd stage funding of companies in Colorado.

In this case you are talking a total investment of 3 – 10 million/company which is 750K – 2.5M from the state of Colorado. And that will generally lead to between 40 and 100 new jobs so 25K/job. And we’re talking good jobs.

And unlike most every other investment the state makes to bring in business where it pays out money for jobs, this is one that would return more cash than what is paid out. VC firms are profitable. After 5 years this becomes an income stream for the state.