Here’s where Utah companies are getting their funding
When Davis Smith founded PoolTables.com in 2004, he was lucky enough to have the financial support of friends and family. “We even had my parents and in-laws mortgage their homes to finance the business,” he recalls. As a result, “we never raised venture capital, so we owned 100 percent of the business when we sold it.”
Many entrepreneurs can’t―or don’t want to―pull off a feat like Smith’s and instead opt for outside funding. Maybe they don’t want to become financially entangled with family and friends. Maybe their family doesn’t have the resources. Maybe they have nowhere else to turn. For whatever reason, many young companies turn to external funding.
Davis himself opted to raise outside money for his next two ventures: $55 million in 2010 for Brazilian ecommerce retailer Baby.com.br (Davis had moved his family to Brazil for a spell) and $33 million for outdoor gear company, Cotopaxi in 2014. Now, Davis himself is a prolific investor in companies founded by others. To date, he’s invested in 37 companies, five of which are Utah-based.
Utah’s startup scene pulls in California dollars with many high-profile funding rounds cementing the bond between Silicon Valley and its smaller sibling in Utah, Silicon Slopes.
Take Utah’s most celebrated homegrown tech firm, Qualtrics―acquired by SAP for $8 billion. High-profile Palo Alto VC firms Sequoia Capital and Accel Partners (now simply Accel) poured a combined $70 million into Qualtrics’s Series A in 2012. They then returned—joined by New York City-based Insight Venture Partners, now Insight Partners—in 2014 as part of a $150 million Series B. Finally, all three ponied up $180 million for a 2017 series C.
Similarly, data visualization platform Domo attracted a who’s who of Silicon Valley VC, including Andreessen Horowitz, Marc Benioff, and Benchmark Capital. Instructure had its Bessemer Venture Partners based in San Francisco. Pluralsight received a massive infusion from Insight Partners, Iconiq Capital, and Sorenson Capital, and so forth.
Though they may not get the same media love as the big names, Utah venture capital funds play a vital role in the state’s startup ecosystem. Among them: Salt Lake City’s Signal Peak Ventures, Mercato Partners, Epic Ventures, Overstock-affiliated Medici Ventures, and many more.
Naturally, Utah VCs don’t limit themselves to Utah companies, but many of them do give preference to their neighbors. Signal Peak Ventures, for example, invests in “a blend of inside and outside of Utah, approximately 50 percent each,” according to founder, Ron Heinz.
SPV has “35 companies across multiple funds in our portfolio,” mostly “companies that provide disruptive services optimized by software,” or “software enablement services.” Local portfolio constituents include Chatbooks, a photo retention and enhancement platform; SLC drone company Teal; Salt Lake City retail maintenance company Command7; home automation company Control4; and Wildworks, which Heinz describes as “a kid’s virtual world.”
Fifty percent of in-state investment is significant for a venture capital fund, and that proportion seems to track across the portfolios of other Utah VCs. Peterson Capital invested in out-of-state ventures such as California-based Grain and Therapedia, London-based Homelyfe, and Seattle-based Spruce Up—but also in Vivint, the aforementioned Cotopaxi, Dwelo, Jolt, and other Utah companies.
Sorenson Capital, in turn, includes in its portfolio Draper-based TruHearing and Zarbee’s Naturals, Lindon-based BambooHR, and Lehi-based Jolt—as well as Axiom Materials, Couchbase, and more from out-of-state. “We prefer to invest in-state whenever possible,” Heinz explains, “to support local entrepreneurs with both capital and our time.”
For Utah VCs, potential investments outside Utah dwarf those inside the state. It’s basic math: Utah’s GDP is $136 billion while the rest of the country is roughly 140 times that. Utah ventures comprising anywhere near half of the investment portfolio of local VCs demonstrates an outsize preference toward supporting the in-state economy.
Economically and demographically-speaking, Utah may be relatively small, but it “punches above its weight,” says Smith, who highlights that our state ranks “10th in venture dollars invested by state despite ranking 30th in population.” As a per capita metric, this “puts Utah as 6th in the nation.”
Heinz agrees that “there are a number of advantages about being a Utah-based VC.” He cites a “Utah culture” of hard work, loyalty, and “a dedicated group of employees” that form the backbone of local companies. And, given the smaller size of Utah’s market, “reputation and work ethic are extremely important,” giving reputable founders and funders a significant edge.
“It has been an exciting couple of years for Utah’s startup community,” Heinz reflects, “with a number of new and exciting companies breaking out and growing.” More somberly, he notes that the good times never continue unabated and that while the overall trend is positive, significant headwinds have begun to blow.
Given the current “macro gyration with the coronavirus scare”—an almost sheer dropoff in economic activity—“2020 and 2021 could present perhaps some tougher sledding than we have been accustomed to these past several years.”
While economies based primarily on tourism or energy extraction are predicted to fare worst, Utah’s diversified mix of tech, manufacturing, agriculture, mining, tourism, and energy industries should hold up fairly well.
Plus, we Utahns—whether natives or transplants—like to think we’re a hardy breed, capable of handling the odd bout of “tough sledding.” As Smith explains, “it definitely appears there’s something in the water in Utah that generates great entrepreneurs.” Ones that, hopefully, overcome plague, pestilence, and national malaise (should it occur).