Prior to 2002, venture capital firms were pretty much nil in Colorado Springs. Investment giants migrated to areas like Silicon Valley, Calif., a hub for high-tech companies.

Despite the high-tech fallout of the late nineties, venture capital companies continue to add to their portfolios companies that could produce high returns on their investments. Innovative technology, with its high-risk and high-growth potential, continues to promise the most bang for the buck.

Colorado Springs has earned its own reputation as a high-tech focal point; thus, in the last year, a few venture capitalists have come to nest and fill the void. One local nonprofit organization, the Peak Venture Group (PVG), has been instrumental in promoting the Springs as a hot spot for not only the high-tech industry, but also various other budding entrepreneurs and emerging companies. PVG connects entrepreneurs, investors and idea people through networking opportunities, educational breakfast meetings and special seminars.

Three years ago, a group of individuals formed the PVG board of directors with a goal to provide a forum for entrepreneurs who were looking for start-up monies and/or resources to build or grow their companies. “We all wanted to give something back to this community,” said Jim Wittenburg, president of PVG, “and we wanted to develop a method to keep resources in this town and build the community. Helping local ideas come to fruition is a payback to the community.”

Although venture capitalists and individual investors tend to align with those high-risk, high-return companies, PVG is committed to helping all small-business ventures. The group has 50 members and a few success stories. Six Colorado companies received venture capital money through PVG efforts to mesh the ideas, the businesses and the money, said Wittenburg, whose own company, AGI Manufacturing, formed an independent company in the Springs because of interactions with PVG. AGI Manufacturing, producers of a small, metal clamp for suspended ceiling light fixtures, originated in Canada, and its added presence in the Springs has created contracts for local manufacturers.

PVG members and guests meet for breakfast every other month to network and gain knowledge from single five-minute presentations and a 45-minute feature speaker. On Monday, June 23, 170 people gathered at the Broadmoor Hotel for a PVG-hosted seminar featuring Joseph McAlinden, Morgan Stanley Investment Company’s chief investment officer and managing director.

Acting as liaisons between entrepreneurs and investors, the group has revitalized the hopes of many people who have an idea and need a helping hand to get it off the ground. PVG coordinates its efforts with other small-business advisors such as SCORE and the University of Colorado at Colorado Springs’ Small Business Development Center. All entrepreneurs’ homework must be done and clean business plans in hand before investors are brought in.

Who are these investors? Where does the money originate? Loren Lancaster, the president of Front Range Ventures Connections, said there are five stages to the life of a company.

The first stage involves the initial start-up capital or seed round of investment; those funds usually come from the business owner (including banks) or business associates and/or friends and families, said Lancaster.

The next stage is the additional monies required to get through various phases of operation. This second round of investment monies is referred to as angel financing. Angels are traditionally accredited individual investors whose net worth is about $1 million, with a cash flow of approximately $200,000. Lancaster profiled the angel as a successful, semi-retired person with a desire to participate in a business of interest at an advisory board level.

Venture capitalists are brought in during the company’s third stage. Lancaster defined venture capital as business entities that invest monies from funds acquired through private individuals, insurance companies or pension funds. By the time a venture capitalist comes in, a company is normally operating with 10 to 40 employees – the idea of further investment leading to growth.

Wittenburg conveyed the monetary differences between angels and venture capitalists: Angels usually invest $500,000 to $1 million; venture capitalists invest over $1 million.

The fourth stage of a company is the mezzanine, which means the company is profitable with an ongoing flow of revenue from service or product sales. Venture capital investing at this stage is for debt financing (rather than equity financing), or investing with an option to purchase the company.

Finally, the last stage of a company’s life is the exit phase, where an acquisition occurs, or the company goes on the stock market as an IPO (initial public offering).

Lancaster helped build three start-up high-tech companies in Colorado through angel investing. The evaluation process of the early stages of start-up companies is vital, and Lancaster, through a network of friends and colleagues, has the resources to assess them. He has also been successful at building a network of investors who act as sources of capital at the angel level. And there is a draw to investing in local companies because angel investors like to sit on boards and meet with owners, sometimes on a weekly basis. Filtering money to local entrepreneurs means less travel for investors.

“I see an average of two new companies per week,” said Lancaster. Lancaster focuses on technological companies, but doesn’t anticipate a reoccurrence of the frivolities of investing that happened in the nineties. “We were once willing to throw our money at anything (i.e. the dot-com companies), and now we’ve learned that certain business models don’t work.” But Lancaster said investors are still excited and amenable to fund innovative products. “The Internet has transformed our lives, and it is hard to comprehend how much it will affect us in the future,” said Lancaster. “There were 14 venture capital deals completed in the first quarter in Colorado, and the economy is positioned to recover in the third quarter.” Lancaster believes the Springs’ alignment with national defense and security and the satellite industry will be beneficial to a local economic upswing.

Harboring the same positive attitude about economic recovery is Jim Kenyon, operations manager for Murphree Colorado CAPCO, a venture capital company established in Colorado Springs in 2002. Murphree is one of six CAPCOs in Colorado certified by the Colorado Office of Economic Development.

CAPCOs are unique in that investment funds are generated exclusively from insurance companies, and, for every dollar the insurance company invests in a CAPCO, the state grants the insurance company the same dollar amount in tax credits. In turn CAPCO funds must be invested in local companies that have 50 percent of their assets and 75 percent of their payroll based in Colorado. CAPCOs are an economic development tool to encourage venture capital to remain in the state, said Kenyon.

Murphree Colorado CAPCO has been in Colorado Springs since the spring of 2002, and Kenyon relayed that venture capital companies with roots here enhance opportunities for local businesses looking for money. He also reiterated the interest in high technology. “Investors were chasing sizzles and bubbles in the 1990s and got caught up in the euphoria,” said Kenyon. “Although history tends to repeat itself, it won’t happen for awhile, and venture capitalists are now more conservative and consistent.”

Kenyon added that venture capital companies incur more losses so the wins have to be big. “If someone develops an idea into a product, like a software program, no one can replicate that kind of success,” said Kenyon. “But few have the combination of a new idea and good management skills to develop it in the marketplace.”

The outlook is promising for everyone. “I am encouraged because venture capital companies are being contacted with high quality requests,” said Kenyon. “There are now stronger deals flowing, and we are in the early stages of an economic recovery. There are signs of improved sales, and it’s a much more favorable investment atmosphere.”

The Peak Venture Group’s desire to expose the Springs as a hotbed for venture capitalists is working; the upshot to their labor: hope for the entrepreneur and hope for the economy.

For more information on the Peak Venture Group, visit their website at www.peakventure.org.

(Copyright 2003 Dolan Media Newswires)