The Flavors of Venture Capital in Utah
This past week I spoke with a friend in New York City who was fascinated with the impressive growth of Utah’s tech companies, but (like many) was unfamiliar with how the venture scene has helped shape them. Those of us with roots in Utah tech are proud of what’s happening and can point to a time when things were different. You know: “Why, when I was raising money back in the early 2000s…” My friend is not unfamiliar with Utah or its people, so he understands some of the generally accepted reasons Utah is gaining momentum. The questions he posited to me were, “Who is funding these companies? What’s the venture scene in the state?”
Similar questions hit me nearly four years ago, a few years before I ultimately made a career shift from full-time operator to VC. I remember a phone call I made from a Sheraton hotel room in the Winter of 2011. My startup had exited just months prior and this was a visit to our new HQ to get to know members of the new [larger] team. I called a long-time friend, and now my partner at Peak Ventures, to shoot the breeze. His business was growing well and he had started angel investing in the state. I was jealous- for many tech founders, the notion of backing the next generation of builders is 2nd only to the excitement that comes from building yourself. And, Jeff and I had a commonly-held belief that investing in the state was still in its infancy. Neither of us had found a perfect investor fit in-state. He had bootstrapped his startup and I ultimately raised from out of state. At some point one of us (he claims it was him I’m sure it was me) said “let’s do venture differently in the state!” It just felt obvious. And I had similar conversations with at least a dozen other entrepreneurs in Utah. But it was Jeff who would ultimately have the chutzpah to go and do it — — and it’s a tag-team effort ever since.
Walking through the VC doors in the state, I’ve found myself holding on tightly to two themes: 1. Learning from the past to appreciate today’s context, and 2. Bringing a unique perspective to that context. Initially, I was missing some of the former — I had a vignette here or there, but the data points were too few. Venture investing is anything but standard and I viewed it from a different perspective than those with backgrounds in business school, consulting, or who had grown up professionally in VC. I have a deeply held belief that empathy was largely missing and not for lack of interest in entrepreneurs but from the lack of significant time spent by institutional investors in themselves building successful venture-backed businesses. It was only after I did some homework and frankly, cut my teeth through sweating firsthand with other venture investors that I was able to value what I brought to the table that complimented my colleagues in the state. So here’s what I did and what it revealed:
To speed up my learning curve, I did some homework with the Peak Ventures team to map out the history of venture capital in the state of Utah. We’ll call it VC genealogy. (A Utah Mormon boy doing his genealogy. How fitting.) We explored the roots of every venture fund in the state, mapped them to a timeline, and categorized the brood. Use it freely and help me improve it if you know something we didn’t find! Perhaps it will help those interested in gleaning historical context to better engage with any of the Utah players.
Some comments on the Who/When/How of the genealogy:
Who: If you’ve operated in the state, you’ve heard of Novell and Zion’s Bank. Most of the venture capital firms in the state are descendents of one of those two firms.
When: The timeline introduces little creativity, other than the fact that the start/stop of these funds is not always clear. There have been funds where partnerships fractured and one partner has continued the fund under a new name while the other raises new money under a different title. But from what we’ve dug up, this is pretty close.
How: The 3rd step, “categorizing it all,” was where my own biased lens comes through. It took several iterations and some non-industry friends to help clean up and put what I think is a fair outlook on venture in the state. More on that later…
Here’s how it shakes out:
Top box
Much like the history of venture in San Francisco or Boston, Utah has benefitted from the venture pioneers of days past — those with the foresight and vision to blaze new paths in the state by investing in tech when tech was unsexy.
Historically, a few investment groups had their pickings in the state. Although the pool of tech startups was smaller than it is today, these groups were very much in the driver’s seat when it came to dictating terms. To be clear, this was before the later cast of Bay Area characters was active in Utah. Angel groups emerged to pick up the some of the slack. I raised from the Utah Angels, a group then based in Utah County (Provo). Similar groups were created in Park City and Salt Lake City, and took on the names of their respective cities. The activity of these angel groups was high, and reviews mixed…as with anyone investing in risky startups. (You reject enough deals, navigate enough deals that go sideways, and surely you’ll have some naysayers.)
So where are we now? Unequivocally, venture in Utah is in as good a state as it’s ever been if we measure by deals done and alignment between founders and investors. Macro forces and local forces are both at play. Here’s some primary data: Peak Ventures has now co-invested with people or remnants of each of the investment groups in Utah. Epic Ventures, Kickstart Seed Fund, Pelion Ventures, Peterson Ventures, Signal Peak Ventures, etc. Because of this direct experience with them, I can now speak to the caliber and concern these investors have for the startups they back — it’s genuine. I’m not saying it wasn’t at some earlier time, nor am I glossing over the fact that the partner in the firm is as important as the firm itself. I’m simply saying that from the firsthand experience I had a decade ago and from the conversations I’ve had with countless fellow entrepreneurs, we’ve come a long way. The general tide has risen in the state. Long ago are the days writtenabout by Instructure CEO and serial entrepreneur Josh Coates. In fact his beef then wasn’t with the VCs, but rather with the angel investors who operated in a somewhat insular environment. It was some of those angels, named and unnamed, that followed up his call-out with a rebuttal that makes for an interesting read, if you’re into founder/investor beefs of the mid 2000s. I’veshared as much. Utah remains land-locked (remarkably no new coastlines popping up on us), but information flows freely here as it does anywhere in the world; and that free-flow of information makes for higher accountability between startup founders and those investing in their businesses. It checks the interests and forces behind venture investing. On that note…
Family offices
The forces weighing on venture investors are not inconsequential, and family offices provide optionality to entrepreneurs and diversity in capital sources. Having invested as an angel for more than a decade now, I expected a change of context when I became a full-time professional investor. We have LPs who’ve entrusted us to deliver returns in-line with the expectations set when we attracted their investment dollars.
And this is one reason why family offices add to a venture scene dynamically: they introduce a pool of capital driven by forces fundamentally different than traditional VCs (time horizon, investment pace, and ultimate accountability). At a minimum this gives variety to startups raising money, and at best it creates competition among professional investors, shoring the gap between entrepreneur and investor interests as they consummate a deal. The family names Huntsman, Peterson, Sorenson and others have historically made an impact, and our state is better because of them.
At the same time, “straddling funds,” or funds that straddle another geographical region (say Silicon Valley and Utah) have similarly introduced new thinking, connections, and breadth to the Utah scene.
Entrepreneur-investors
I personally hold a broad definition to the term entrepreneur, and think that many companies, large and small, as well as people, whether college dropout or MBA, can have entrepreneurial aspects to how they do what they do.
Defining oneself in the midst of one’s peers can be dicey. Self-serving for sure. So blot out the names in this section on the chart for a minute. Here’s what we can all agree to: The history of Utah tech has led to a handful of recognizable wins starting with Novell, highlighted by Omniture (Adobe), and continued with the likes of Domo, Pluralsight, Qualtrics, InsideSales, and so on. This environment has inspired a wave of entrepreneurs, of which my partners and I are a part. Lucky for us to be alive at this time, period. And now many of us are cycling capital spun out of our own startups back into the Utah startup machine. To use a metaphor shared by a local tech CEO: we’ve had a few oaks historically, and now have many more oaks with dozens of saplings sprouting up. We have enough density, and yet are not as dense as Silicon Valley; you can successfully build and grow in Utah, and won’t yet face some of the same challenges in cost structure, hiring and building in what to some is a homogeneous population.” I chuckle at the last part — because Utah certainly has its share of people who look the same. But you get the point.
As for the Peak team, we’re entrepreneurs that got our start in-state and have now made it a full-time endeavor as investors, bracketed by LPs who similarly believe in what’s in store for Utah, and a startup scene that is increasingly diverse and hungry for greater diversity of capital sources.
Future of Utah venture
If you believe that massive growth lies ahead in Utah tech then you have to believe that the supporting cast of characters, including investors, will similarly grow. Based on the increasing frequency of out-of-state investors sourcing deals in the state, it’s likely we see growing streams of out-of-state capital flowing into Utah. At the same time, with the growth of the tech giants (I’m resisting using the 4-legged, mythical horned animal metaphor), inevitably and repeatedly more capital and talent will be released into the state (spawning those saplings), fueling not only more innovation through startups, but more entrepreneur investors.
For entrepreneurs, it’s all positive. What was almost a given in the past — like moving your startup to Silicon Valley — now becomes a choice. Recruiting senior talent becomes easier due to both the appeal of the state and the fact that you’ll be able to find that talent, increasingly, in-state. And raising capital with entrepreneur-friendly terms becomes easier because investors and entrepreneurs align on maximizing their mutual upside (versus the short-sided approach of downside protection). Net, net, the chasm between innovation and capital in Utah is shrinking. By looking at our past, I’m as optimistic as ever about the future.
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