Colorado Springs News, Sports & Business

Gazette Premium Content Colorado entrepreneurs gather to share, get feedback on their concepts

By Katherine blunt katherine.blunt@gazette.com - Updated: August 5, 2014 at 6:56 am

Ian Lee had to yell to silence the group.

Fifty people paused their conversations and turned their attention to the center of the room, where three entrepreneurs were about to share what each hoped would be the next big idea.

Lee and his cousin, Nick Lee - two organizers of Colorado Springs New Tech, a pitch night hosted by Peak Startup - fed the crowd's excitement with 10 pizzas, a keg and boxed wine.

New Tech, a monthly event where Colorado entrepreneurs pitch their ideas and get feedback, wasn't always so crowded. When Peak Venture Group - now Peak Startup - hosted its first pitch night nearly three years ago, about 25 people registered, and not all showed up. It now attracts dozens of entrepreneurs, a trend that mirrors the growth of the startup culture in the Springs.

"When we first started doing pitch night, we often struggled to go for a full five minutes of questions," said Ian Lee, who sits on Peak Startup's board. "Tonight we could have gone on for 15 minutes."

Webster's dictionary defines a startup simply as "a new business venture," but the well-known successes of Facebook, Twitter and other Silicon Valley moneymakers have changed its connotation. Often described as tech-focused companies poised for exponential growth, startups have generated enormous revenues during the last decade, spurring cities across the country to foster their own entrepreneurial hubs.

"A (high-growth) company at some point will have revenue take off at a rate much higher than the number of employees you have to add," said Ric Denton, president and CEO of the Colorado Springs Technology Incubator, a nonprofit established to accelerate the growth of technology startups. "Those are the companies that will become the primary employers of tomorrow and make a difference and create the jobs we need."

The late 1990s tech boom sparked some startup activity in the Springs, but only within the last several years has the entrepreneurial community grown in prominence. It's difficult to measure the number of growth-focused tech startups because most data sources track the openings of all businesses. But Startup Colorado, an initiative to develop and connect Front Range entrepreneurial communities, identified 35 startups in the Springs last year.

It's below the number of high-growth businesses in established hubs such as Denver and Boulder, where hundreds of startups have taken root. Still, the startup culture in the Springs has evolved in other ways. Networking events for entrepreneurs are becoming more frequent and popular, demonstrating a growing interest in fostering an entrepreneurial ecosystem.

Peak Venture Group and Startup Colorado Springs, founded in 2000 and 2011, respectively, each launched a number of events within the past year - including Startup Weekend, Open Coffee Club and Entrepreneur Evenings - before merging to form Peak Startup in the spring. The group will host the first Colorado Springs Startup Week this fall, which will include the area's first 1 Million Cups event, a weekly educational program for entrepreneurs developed by the Kauffman Foundation.

Late last year, the Technology Incubator and High Altitude Investors, a group of angel investors administered by the Incubator, launched MashUp, a quarterly networking event where two entrepreneurs can pitch their ideas and receive feedback. More than 100 people attended the June MashUp.

"We've had very substantial traction," Denton said.

This year, five teams of tech-focused entrepreneurs camped out at Epicentral Coworking - a downtown workspace for entrepreneurs and freelancers - to compete in GoCode Colorado, a statewide competition to develop apps. LocalSage, an app that helps entrepreneurs determine where to launch their businesses, marked the Springs' place on the startup map when it won third place.

Epicentral lets those without an office use its coworking space - complete with desks, private rooms and a kitchen - for a monthly fee. Coworking spaces first appeared in San Francisco in 2005 and became popular with the startup scene there. Lisa Tessarowicz, who founded Epicentral with Hannah Parsons, her former business partner, in 2011, said the idea was partly inspired by her brother's experience with coworking spaces in San Francisco.

"(Parsons) saw a need for it, and I also saw a need for it," Tessarowicz said. "I was looking for way to support and get to know the entrepreneurial community, and I thought that by starting a coworking space, that could be a first step in getting to know the scene and the players and starting to build a community and support them."

Epicentral has more than 40 members, with about a third of them working on startups, Tessarowicz said. Membership is expected to grow.

"I've seen more energy than I expected, and I've seen more potential than I expected," Tessarowicz said. "There are some really great people here with some really great ideas, and I think that the entrepreneurial community here can grow and have a real impact in our community's economic development."

Facing challenges

Despite the surge in activity, the local startup culture is beset with challenges, including a lack of accessible capital, a dearth of young professionals and stagnant economic development in the Springs.

And a significant challenge exists within the entrepreneurial community itself: Competing strategies to accelerate the nascent startup movement have impeded its growth and divided the organizations trying to drive it forward, say those involved with the groups.

"Even the entrepreneurial community itself is siloed," Tessarowicz said. "There are many different groups in the field, and they don't work well together."

From Denton's perspective, a lack of capital in the Springs is one of biggest roadblocks for its startup community. In the final quarter of 2012, Springs-based Cherwell Software secured a $25 million investment, but since then, investments in the Springs have been considerably lower. In early 2013, computer storage manufacturer XIO received $2 million, and data from CB Insights, a New York-based investment analytics firm, showed that seven companies received a total of about 
$22 million in corporate venture capital this year.

"There is an appalling lack of risk capital being deployed in this region," Denton said. "At the end of the day, if it's a serious company and a serious idea, it takes money."

Efforts have been made to generate more capital for Springs-area startups. Bill Miller, a local entrepreneur and investor, started a small venture fund in the Springs in 2010.

Though the fund didn't garner much interest from other investors at the time, he is soliciting investments for another round, he said.

"We've made a few investments in a second fund, we expect to keep doing that," he said.

High Altitude Investors was established in 2008 to provide capital for startups from the Springs and elsewhere. The group has directly invested more than $2 million in startups since its inception and helped them secure subsequent investments totaling $10 million to $20 million, Denton said.

A number of the Incubator's clients pitch to HAI, many of which produce software products and other tangible technology. ConcealFab, which makes shelters for communications antennas, and 
FuseSport, an event management software developer, each received funding through HAI. Both are based in the Springs.

But High Altitude makes investments relatively infrequently. The group holds a forum every two to three months and receives about 12 applications from startups in need of funding. A screening committee usually selects about three to present at each forum, and each year, the group makes about three investments total, Denton said.

"Investors want a return on their money," he said. "It's a very competitive environment."

Seeking funding avenues

The limited funding avenues in the Springs has forced some local startups to seek capital elsewhere. Erik Boles, a serial entrepreneur and founder of Gearmunk, a member-based online resource for outdoor gear reviews, said he looked to Denver and other cities after HAI declined to invest in his latest startup, which launched last month. Other local startups had similar experiences, creating a perception within the parts of the community that HAI's investment criteria are too restrictive. Julian Flores, founder of GetOutfitted, an online outdoor gear and apparel rental service, applied to pitch to HAI but didn't make it past the screening process, he said.

"They don't understand the high-tech startup space," Boles said.

But for others within the startup community, demographic and economic factors pose more of a problem for entrepreneurial development. Many young professionals have left Colorado Springs and moved to more economically dynamic areas such as Denver and Boulder, leaving Springs-area startups with less young talent to hire. From Mayor Steve Bach's perspective, the startup culture will develop alongside the downtown area if initiatives to boost the city's core take hold.

"We need to create a renaissance in our downtown so that more employers to want to be downtown," Bach said. "We need more affordable housing, more retailers and services, which will then attract young people."

According to Joe Raso, president and CEO of the Colorado Springs Regional Business Alliance, the problem is the city's reputation. It's known for its outdoor activities and its military presence, but developments within the city's business sector go largely unnoticed, he said.

"I've talked to people along the Front Range, and they have a very narrow opinion of what Colorado Springs has to offer," he said. "We need to talk more about what's going on and what's really positive."

Bryan Leach, CEO of Ibotta, a Denver-based startup that designed a cash-back app for consumers, said the transformation of Denver's startup community is largely a result of the city's effort to brand itself as an entrepreneurial hub - and it's an ongoing process.

"There's a static conception of Colorado as a ski place and now a marijuana place," he said. "We're all fighting for the definition of the community. You have to tell the story of your successes."

Though Colorado Springs has few major startup successes to promote, efforts are underway to heighten collaboration between players in the startup arena. The business alliance is creating an entrepreneurial sector team to better understand the issues facing the community.

But the process of creating a dynamic startup environment has only just gotten started, Tessarowicz said.

"To really get this movement going will take a lot of time and a lot of work, and we have to keep hammering it out," she said. "I've seen tremendous improvement, but it's going to take another 10 years for other people to be impressed with it."

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