You want more jobs in Colorado?

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.

15 Community Comments, Facebook Comments

  1. Tom says:

    create many jobs? The majority of startups call it a success when they manage to get bought by one of the tech behemoths without ever scaling up to the degree that local jobs happen. My impression of the average successful startup is a small office or coworking space with just a few people or else a handful of remote workers scattered around the country/world. Sure there are the companies that manage to get huge, but those are the 20% that venture capital is chasing.

    While I think that encouraging innovative and disruptive technologies is laudable on its own merits, the state would be better served jobs-wise in helping accountants or dental offices get started.

    • ajb says:

      I imagine that the number of dentists and accountants follows the population of an area. Those jobs don’t bring in new money. While those jobs are good and necessary, having more dentists just splits the pie into more slices.

      Tech jobs bring in money from outside the area. It also stimulates demand for more local services (i.e., restaurants, recreation, and dentists).

      I think David’s idea is sound, but I don’t know if it’s politically viable. Is the (voting) public ready to see taxpayer money at risk, with the full knowledge that many ventures will eventually fail?  

      • Tom says:

        in terms of urban and rural service wastelands. Startup costs for things like doctors offices or even grocery stores are prohibitive considering the market available, but the need is there. I would support creating the educational and infrastructure environment that encourages tech startup investment, but direct subsidies seem like a poor investment of public money.

        Tossing money at keen new technologies is pretty cool, but it would end up going to the infrastructure islands like Boulder and leave the rest of the state even further behind.

        • ajb says:

          the state helps provide necessary infrastructure (office and equipment), but that infrastructure remains the property of the state?

          You might even be able to do something similar with tech start-ups, but since David is talking second-round financing, I don’t think it’s quite comparable.

          • DavidThi808DavidThi808 says:

            Duplicate Boulder in Pueblo, Grand Junction, & Colorado Springs (I don’t think anywhere else has sufficient population). But that will require massive investment because you need a world-class university and a living environment that is super nice (ie high taxes).

        • DavidThi808DavidThi808 says:

          You can’t create a high tech center where nothing is going on. Success is really really hard and you need a ton of others around – people to hire, peers to talk to, services you need.

          With that said, success expands out. Boulder already pushes companies out as far as Denver. And I’ll bet some are starting to move up to Ft. Collins.

          I think if this is done well it could add a lot of jobs from south metro Denver up to Ft. Collins. And boosting jobs across there helps all of Colorado indirectly both in increased tax revenue, indirect services, and even in-state tourism.

    • DavidThi808DavidThi808 says:

      One is a start-up that is 2 – 5 people where they create the initial product and then some company snaps them up. In this case you will often (not always) see a subsidiary of the acquiring company then get created here and that subsidiary hires more people. That’s how we have a Google facility in Boulder.

      Next is one that goes through 3+ rounds of funding before being acquired. Companies in this category tend to grow to between 40 and 100 employees. Lots of hiring for this group.

      Third is the case where the company goes on to be public. This is rare but is the best outcome because you now have the corporate headquarters here so lots & lots of jobs.

      My proposal is round 2 funding so it would not fund companies that only go to 5 people and are then acquired. What it would do is a number of the companies that would stop at 5 would instead get that 2nd round and grow to 40+. And that’s a giant win.

    • Before getting to that point, the company had offices in two states and employed more than 40 people, as well as a couple of satellite employees running “offices of one” in key markets.

      The company rented two office spaces, paid market wages allowing employees to spend and stimulate the economy, and contributed to the employment of service, maintenance, and construction personnel through their needs. Additionally, executives and top level managers traveled frequently out of DIA, contributing to airline jobs.

      50ish jobs may not be enough to jumpstart the economy, but if we had 50ish new jobs being created in every office building that currently has a “space for rent” sign?


  2. DavidThi808DavidThi808 says:

    Take the money we’re wasting on CBMS and instead use it here. The state’s never going to get CBMS to work effectively so no point in wasting money trying.

    • Car 31 says:

      No three.

      First, I try to ignore you, I do. But then you come up with statements like this that are so stupid it makes me cringe.

      Second, if I understand what you’re proposing is the state use taxpayer money to subsidize and fund VC gambles. How is this different than the oil and gas subsidies or wall street subsidies you rail about. I ask that seriously and admit I don’t know much about VC.

      Third, you’re probably being snarky, which you’re not good at, so I’ll delete most of my awesome retort to your stupidity and simply say, if you got rid of funding for CBMS you would exponentially make it more difficult and slower for small things like food stamps and benefit checks to reach the needy.  

      • sxp151 says:

        If we have enough startups, the needy can get jobs there! We can even fund a startup for the needy, and they can write software that pushes food stamp money around.

        I am so good at thinking of ideas, please praise me.

      • DavidThi808DavidThi808 says:

        The state has wasted so much money there while accomplishing very little. But yes, we do need to get it fixed.

        As to the VC investment, the odds are very good that the money invested would not only be paid back, but with a very nice profit. The state would be a principal in the funds it invests in and that means they get a share of the profits.

        So very different from the gifts given to other industries.

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