Phoenix Beats Denver in 2020 Venture Funding Deals, But There’s A Problem…

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Since January 1, 2020, data shows Denver at $249,598,480 in venture funding, or roughly two-thirds the funding invested in Phoenix, Arizona, #8 on Inc. Magazine’s top 10 best cities for startups in the US.

According to Crunchbase data, as of August 1, 2020, there has been $383,985,321 in venture funding in Phoenix this year, to include angel, pre-seed, seed, venture capital (series A, series B, series C), crowdfunding, and private equity. Interestingly, 25% of the seed investments in Phoenix are over $1 million in funding, with one deal over $2 million. Venture capital alone is on fire in Arizona, showing over $255 million invested in Phoenix which is $44 million more than Denver!

This is a surprising figure for 2020, considering that the Arizona startup ecosystem frequently compares itself to Denver behind closed doors. Arizona should be proud of this figure, and perhaps all the excitement behind the startup scene in Tucson and Phoenix is finally catching on. Or, it could be the blistering sunshine and the 2-hour direct flights to San Francisco.

When you compare the number of companies registered on Crunchbase, you’ll also see that there are one-third fewer companies registered in Phoenix (1838) than in Denver (3083), of which 49 of those Arizona deals received venture funding (almost 3%). Whether incomplete data or not, and whether another platform like Pitchbook may have more robust investment data or not, this means that even with more companies registered in Denver, there’s a greater chance of getting funded by an Arizona venture capitalist or angel investor.

Here’s the thesis of our firm, Shot Ventures, and I’ll share this because it’s very powerful and means a great deal to local economies — ours in Arizona or yours (wherever you are out there). Much like any startup founder reading this article and as someone perpetually supporting M&A and funding activities, I, too, believe that raising capital is hard. But the more startups and investors market and share successes, wins and capital raise activities — or funding needs — the more eyes will be on the opportunity.

Consider that in 2020, there has been over $1 million in equity based crowdfunding marketed online in Arizona (that we know of). But here are a few reasons that make it even harder, and these are within our control — especially if you’re a startup in Arizona.

Before ripping open a little wound here for venture capitalists and investors, let’s address the entrepreneurs. Almost every week, we get emails from people trying to buy businesses. This week alone, we’ve had three of these requests in Arizona. Our firm tries to be responsive and helpful, answer questions, and point both investors and founders to the right resources…but there are many challenges to raising startup capital.

So, why is it so hard to raise capital and find the right investor in Phoenix, Arizona? What are Arizona founder’s faced with when they’re raising investment funds — especially during the COVID-era? Do startups have to leave Arizona to find investors out-of-state?

Arizona’s Biggest Hurdle To Attracting Capital

Even with increased funding opportunities, and world-class technology, Arizona still doesn’t tell its story. This hurts young companies and investors alike. It dampens entrepreneur success, while constraining investment dynamics on startup valuations (like, applying for a job without Glassdoor, investors could opt out of investing through VCs because they lack transparent local market valuations). For economists and government reporting, there’s a lot more impact here than meets the eye.

Arizona Founders Must Tell Their Story

Growing up around entrepreneurs can be a great inspiration to build a business or continue discovering ways to innovate, especially in tech. But when the entrepreneurs around you are primarily scientists, engineers, and academic innovators, like in Arizona, we need to step away from thanking our wonderful (truly amazing) universities for a moment. Though the University of Arizona (bear down) and Arizona State University are powerhouses for tech…unfortunately, a culture built around intellectual property can over-encourage privacy to the point of damaging a startup’s priority on marketing their needs. Privacy can quickly become secrecy (unhealthily so), and can damage a team’s ability to market, sell, and ultimately get startup funding. It can be incredibly isolating too, with no local success stories to share in.

How do you startups, founders, and serial entrepreneurs fix this? Can local business associations and news outlets do anything to help? Here are some ways for startups to take action (and if you have any others, please leave a comment or share your experience) and be more visible for raising capital...

  • Register your company if you haven’t already on any crowdfunding sites or startup registries, especially if you’re seeking funding. Crunchbase is only one of many. You can also try Angellist, fundable, and others.
  • Stay clear of mentors, advisors, consultants, and investors who encourage you to stay “under the radar” by limiting your spend on expert marketing. Stand up and let them know its important to dedicate consistent story-telling to the public, including any startup highlights like new hires, new discoveries, helpful stories (I.e., case studies), and especially — fundraising or “capital raise” announcements.
  • Always reserve a portion of the story for the public. There is no level of security or ITAR-level defense gadget that cannot provide a level of content describing its mission or goal, while omitting any technical information.
  • I can’t believe I’m writing this, but here it goes: Get online if you aren’t already. Free websites are better than no website. Having a site with no pictures is better than no website. If kids can build a site, so can you. When it comes to funding, every call with an investor or bank will immediately ask you “what’s your website address?” Try About.me, Wix, or even Google.
  • Open a LinkedIn company page and a Google Business listing too.
  • Compile a one-pager of information to send to every interested party, friend, family member, and colleague, which should include a snapshot of your executive summary and your “ask”. How much do you want to raise? Do you need a partner? What kind of customer do you need right now? You can hire a venture capital consultant on UpWork on an hourly basis.
  • Be cautious not to join chambers or associations who want to “own” your story and reduce your marketing efforts to their internal member-networks only. Some could take your membership dues, but avoid helping small businesses (members) with marketing extension strategies unless it benefits their membership dollars. The Arizona Technology Council has been consistent in sharing exciting growth stats for years.
  • Don’t forget, if you’re a good business writer, you can continually send that local association or any industry leader your updates and even offer to be a contributing author (read: industry influencer) to their blog and tell them about your story in a way that enhances their readership and website traffic.

So what do you say? Can you market your wins more? Let’s get louder about local successes. My selfish hope for Arizonans is that tech explodes here and we can only do so with an entrepreneurial spirit — the kind that comes with the infectiously positive startup mentality. I want more capital options for Arizona startups and not just for the founders, but the families they lovingly support.

And why not? Let me know if you need help and find me on LinkedIn or via our website at Shot Ventures. :)

— A special thank you from Shot Ventures to Sophia Kunthara for covering Phoenix, Arizona in her Crunchbase work too. We’re fans! :)

— Shot Ventures is an Arizona based venture capital and strategy firm headquartered in Tucson, Arizona, with additional offices in Phoenix and San Francisco.

Written by

Founder & Managing Partner of Shot Ventures, a Silicon Valley and Arizona based venture capital firm.

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