As startup funding increases around the world, The Exchange has poked its head into markets as far-flung as Southeast Asia, Europe, Africa, Latin America and elsewhere. Wherever we looked, we’ve found venture capital flowing in record quantities.
The story has been largely the same inside the United States, with Boston having a solid year, along with the Midwest and Atlanta. Denver, our focus this morning, is similar.
After digging through recent venture capital data via PitchBook and CB Insights and talking to a few companies in the area, we discovered something notable: Venture capital results are rising in Denver after the city and its near-neighbor Boulder had attracted huge investment from the biggest technology companies.
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Let’s dig into Denver’s venture results, reminding ourselves as we do which companies set up shop in the region, as their presence initially drew in the workers who have since seeded the area with technology talent and capital..
A brief history lesson
If you read megatech earnings reports, you’ll sometimes get a look at how many folks work for the majors. It’s a lot of people. For example, Alphabet recently disclosed that it closed Q3 2021 with just over 150,000 employees, up from a few more than 132,000 in the year-ago quarter.
Denver has attracted more than a slice of interest from names like Microsoft, which has a long-standing presence in Boulder, about 40 miles away. Google dropped $131 million on a Boulder campus back in 2018, to add another nearby example to our list. (Some tech companies solve the commute issue between the two cities by operating offices in both locations.)
Inside Denver, Facebook started hiring back in 2017, the Denver Business Journal notes, opening an office in the city the following year, when Microsoft also built a technology center in Denver. Zoom showed up in Denver back in 2016, notably,
The city is also attracting folks in what we might call tech’s middle tier. Michigan-based Service Express opened an office in Denver in 2016, indicating that the city is not merely a place for the coasts to snag talent and rent offices.
More to our interests, the largest Denver technology employers have familiar names. Per a list compiled by the Denver Business Journal, HR platform Gusto and edtech startup Guild Education are two companies with among the largest staffs in the city. The publication reckoned this March that Gusto had 800 of its 1,400 staffers in Denver, while Guild had 650 of its 768 workers in Denver earlier this year.
Digging into Denver and Boulder’s history painted a far richer picture of historical technology investment than we anticipated. It underscores just how broad tech is moving that so many companies have put down roots in the Denver area. Rocky Mountain High indeed!
More recently
Denver has been on our mind for a little while, given our recent peek at the Midwest’s own startup scene. Guild Education raising $150 million in a Series E earlier this year that valued the company at $3.75 billion. And Gusto raised $175 million in a Series E in August that valued the company at around $9.5 billion.
TechCrunch actually caught up with Gusto CEO Josh Reeves recently to discuss his company’s purchase of another startup, but while we had him, we did talk Denver for a minute. He said Gusto has moved to something akin to a four-hub model, with Denver and San Francisco and New York, along with a “remote” grouping. Denver remains its largest office, despite the company having grown to around 2,000 people, or “Gusties” in the company’s internal nomenclature.
The spreading out of Gusto is related to changes in the venture capital game that are helping the multiunicorn, ironically. As Gusto raises its own geographical distribution and allows for more remote staffing, venture capitalists have also widened their own view regarding which startup hubs are worthy of their attention.
The data
To avoid overindexing on another set of charts that indicate a hot venture capital market for startup fundraising, we’ll be brief this morning on the data front.
Per a recent CB Insights report, Denver-based startups raised around $2.7 billion in all of 2020. The same data set says that startups in the city have raised $3.1 billion through Q3 of 2021 — more capital in less time. PitchBook data backs up the trend that CB Insights notes, but claims some $3.5 billion raised by Denver startups through Q3 of this year.
Those figures are no small potatoes for a metro area that has a population of 3.6 million.
Powering the capital flows
What’s driving the changing capital flows? The same thing that is helping Gusto: increased comfort with doing work over Zoom, which has opened up the market for remote investing and remote work.
Since Denver-based digital mortgage solutions platform Maxwell just raised $52.5 million in new funding, we figured it would be interesting to hear from its CEO, John Paasonen. Having moved to Denver in early 2016, he said in an email that while “local Colorado businesses are landing substantial venture capital investments” today, a few years ago “it wasn’t uncommon to hear VCs say, ‘we only invest in companies in Silicon Valley.’”
Paasonen says that he hasn’t heard that from venture capitalists in a while. Indeed, while being in the middle of a country often means being overlooked, in Denver’s case, its location might actually be one of its top assets.
Says Paasonen: “We’re located in the middle of the country with a major hub airport. As a founder with young kids, it’s great to be able to take a 6:00 a.m. flight, attend meetings and be home to sleep in my own bed and make pancakes for the kids the next morning. With a few exceptions, I could do that for almost every destination in the U.S.”
“Hub” might precisely be the right term for how companies see Denver. When Palantir announced it was moving its HQ to Denver in August 2020, it also made it clear that it would “remain spread out,” the Denver Business Journal reported at the time. And while it had plans to hire up to 250 people locally, that’s still far from its 2019 headcount of 2,500.
Again, this is in line with what we heard from Gusto about Denver only being one location among several, albeit the proportion is larger in Gusto’s case. As we mentioned, the company is one of the largest tech employers in the area. But the list is not topped by startups; first and second place go to Dish Network and Fortune 500 company Arrow Electronics, respectively.
“Today, Denver has a thriving innovation and entrepreneurship scene, especially in the technology space. Large tech companies including Facebook, Amazon, Salesforce, Slack and Zoom all have a presence in Denver,” said Paasonen. “Others have upped and moved here, some of whom apparently have teams in Denver that are now larger than their team in the Bay Area.”
He also predicted that “this trend will only accelerate as companies look for better affordability, more lifestyle choices for their employees and a business-friendly climate.”
Keeping in mind that talent was already one of Denver’s strengths, attracting more of it can only help, and data indicates it is happening: “According to CBRE’s 2021 Scoring Tech Talent report, Denver’s tech talent increased 31% from 2015 to 2020,” Paasonen noted. “Similarly, LinkedIn’s 2020 Workforce Report found that hiring in Denver grew even during the COVID-19 pandemic, while San Francisco’s hiring declined by 13%.”
Combining Denver’s large talent base and high quality of life ratings with Zoom investing has turbocharged fundraising in the city. “Without a doubt, the pandemic has made fundraising easier and more efficient for founders and investors alike,” Paasonen added.
We’ll be surprised if Denver’s Q4 venture capital totals didn’t come out looking average or better for its year thus far, which should mean that the city should attract more than $4 billion in venture capital this year, a little more than $1,000 for each metro area resident. How much higher the number can go will depend on macroeconomic conditions, the same as everywhere. But in Denver’s case it has strengths that go past the same set of positive conditions that are boosting certain regions.
Denver was ready for the Zoom boom and is reaping the — venture capital — rewards.