Cory Finney — Greater Colorado Venture Fund
Cory Finney — Greater Colorado Venture Fund
Innovation in rural America and the power of uppers, downers, and outlets.
Cory Finney is a Co-Founder and Partner at Greater Colorado Venture Fund, a seed-stage venture firm investing in startup companies headquartered in rural Colorado. A few years prior, Cory Co-Founded Kokopelli Capital, a Micro-VC fund dedicated to making early-stage investments in the Rocky Mountain Region. To date, 34 investments have been made from Fund I. Before co-founding two different venture funds, Cory served as the Entrepreneur in Residence at Boomtown Accelerators in Boulder, Colorado, where he led the finance and fundraising curriculum for 44 different companies.
You can find Cory on LinkedIn here.
KEY THEMES:
Kickstarting an emerging startup community
Uppers, downers, and outlets are the key to developing an environment in which a startup community can thrive. “Innovation just tends to happen over caffeine and alcohol.”
Local entrepreneurs with previous exits can play a crucial role in the early development of a startup ecosystem by providing investment capital, expertise, and mentorship.
Gaining support from local economic development leaders can help accelerate the growth of a startup community.
The deployment of as much capital as possible, as quickly as possible, is crucial to the growth of an emerging startup ecosystem. Nothing can grow if you’re hoarding cash.
Operating in rural geographies
Startup companies in rural regions tend to be more focused on profitability from the beginning.
Rural communities will often have a “I can do it myself” mindset. “Rural is just used to playing on its own.”
A lack of traditional Silicon Valley “knowledge” can result in the organic formation of best practices for rural startups with their own business model, circumstances, and geography.
While tempting, it’s crucial that both investors and founders avoid undercapitalizing startups in rural ecosystems simply because the cost of operating is lower.
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How did you first get involved in venture investing?
I was first introduced to venture capital when I was beating my head against a wall, trying to raise money for my last startup. Fundraising as a founder was really my intro to it all. I think that process just made me realize that there are a lot of companies that aren’t being funded, simply because they don’t fit the traditional venture model. That being said, I'm very much a venture capitalist. After my company, I spent three years at the Boomtown Accelerator teaching finance and fundraising. I got to help 44 different companies build their own finance and fundraising strategies. Through that, I really came to understand the landscape a lot better. And, it was at that point in time that I realized that the largest unmet need for startups in Colorado is just pre-seed capital. I wanted to leverage my reputation to support entrepreneurs with more than just hustle. I wanted to write checks as well. So that's when Fletcher Richman, Jamie Finney (my brother), and I started Kokopelli Capital. At the beginning, we were basically a million-and-a-half-dollar angel fund. We raised money from 30+ investors across the Front Range and we became their eyes and ears to the ground. And, we really built a reputation as the young hustlers in the community. As of today, we have 34 investments out of Kokopelli Capital’s Fund I.
The Greater Colorado Venture Fund was really driven by that insight about an unmet need for capital at the pre-seed stage. When we first started out, the state of Colorado had put out an RFP looking for a fund manager to run an investment fund dedicated to rural Colorado. So, we teamed up with our current partner, Marc Nager, and our proposal to manage the first ever rural-focused fund was selected. And, we’ve been investing from that fund since August of 2018. As of today, we have 15 companies in the portfolio under a $17.5M fund. Our mandate is to invest solely in counties of 150,000 people or less — That’s how the state defines rural. Basically, our purview resides anywhere in Colorado that's not between Fort Collins and Colorado Springs [the Front Range].
Is Colorado one of the first states to invest in a rural-focused venture fund?
Colorado is definitely a leader. Individual states have been investing in the venture asset class forever. But, this was investing as limited partners in traditional funds—the Accesses the Foundries, etc.—using money from specialized pools or pension funds. Colorado is the only state so far that has set aside money specifically for investments in rural companies. There's only one other rural-focused venture fund, but it was a private effort spearheaded by a foundation in the southeastern part of the country. As a result, we’re really the first truly rural-focused venture fund.
Seeing as you’re one of the first funds doing something like this, how will you define success?
We believe that you can find venture returns outside of metro markets. Up until about January, we as a country were in one of the longest bull runs in the history of the market. We saw amazing economic growth. But, when you take a look at the statistics, over half of the economic growth in the country occurred in just 17 out of 3,007 counties. So, for us, the idea that you can only create wealth, have opportunity, and build businesses in 17 zip codes seems insane. It’s no wonder we see so many divides in our country on so many different levels. With the tools we have today—especially now that we're in the COVID experiment—it has become obvious that so much of the world can be virtual. And the internet really has broken the idea that innovation must be constricted by geography or proximity. So success for us is finding companies that are being built in these smaller communities across Colorado and getting venture-style returns. Our goal is to prove to the private markets that venture-style returns can be found outside of metro markets.
Have you found that rural companies favor specific industries or business models?
We haven't.
I like to think about it this way: The population of Colorado is around 5.7 million and a little over 3 million people live on the Front Range. This means that 2 million+ people live outside the Front Range. So there has to be shit being built out there.
Now, what’s being built in the mountain communities is going to be much different from what’s being built on the eastern plains. But, in many cases, you have countless entrepreneurs who’ve had multiple successful exits who want to build their next business on their own terms. And, maybe that means they build it in Carbondale instead of San Francisco. If you look at our portfolio, it's everything from agriculture, to booze, to e-bikes, to government tech, to aerospace. It's really all over the board. So there hasn't been an industry focus for us, or for the rural entrepreneurs we invest in.
Do the economics of investing change when investing exclusively in rural companies?
Not really. We’re the typical venture fund and ours is the same model used by everyone else. For better or worse, companies are often priced a little lower in our markets (however with the increase in valuations over the past two and a half years, I would argue rural markets are now priced appropriately). And that’s pretty big. We’ve observed that rural startups often don’t need as many rounds of financing.
Rural founders are often discussing profitability with us right out of the gate. And for us, that’s great. If those companies don’t need more outside capital, we don’t have to take the same dilution risk as other early-stage investors. And, because we’re typically buying in at a lower price, we can still earn venture returns without stacking a lot more money on ourselves.
We also have multiple bigger, high-risk-high-reward bets as well. Our portfolio includes an aerospace company in Durango that’s 3D printing propulsion systems. That’s the kind of startup that will probably need tens of millions of dollars in financing over the life of the company.
One of the other things we’re experimenting with as a result of our investment thesis is revenue-based financing. With those deals, specifically, our goal is to achieve a 3-5x return over five years. And, if you do the math, it actually results in an IRR north of 30%, which is the same rate of return as a typical venture fund that generates 10x over eight years. So in the case of revenue-based financing, we believe we can identify companies that have great cash flows or lower risk profiles that are close to profitability. By providing a bit of capital, we can push that company to profitability, achieve our target IRR, while also receiving several years of payments that can be recycled back into riskier, high-growth bets. So, we see it as a bit of a blended portfolio strategy. This approach also allows the fund to quickly achieve 100% deployed. This way, we can recoup the fees that our investors pay us and actually plow that money back into investments as opposed to simply collecting management fees.
In your experience, what differentiates the Front Range from rural startup communities?
I only moved to Durango, Colorado a few months ago. But, I've been on the Front Range for more than a decade. If I were to compare the Front Range [Fort Collins to Colorado Springs] to other more established metro areas like Austin or Columbus, I would say that the give-first mentality there is real. In the Front Range, you have greater access to people. I think that, oftentimes, startup founders will become successful and then disappear. But in the Front Range, those successful people want to stay involved in the community and they're often willing to answer an email or hop on a call. So I think the support system here is incredible.
When I look at the rural communities in Colorado, I think there’s a strong culture and mentality of “I can do it myself.” I know that’s very common in other startup ecosystems, but I think that rural is just used to playing on its own. One of the interesting things about rural Colorado is that many of the ideas that we [venture investors and those immersed in the startup world] take for granted aren’t as ubiquitous. So best practices, lean methodologies, or the basics of fundraising haven’t made it to all the founders in rural startup ecosystems. Sometimes, if we’re implementing a new idea or establishing a new process, we’ll tell founders to go read something like the Lean Startup to help them save months of time and tens of thousands of dollars.
Now, we’re trying to build out two things to help support Front Range startup communities. The first is a virtual mentor network that will allow venture investors and entrepreneurs to coach new founders. The second piece is a long term plan to unlock much of the dormant capital in the state. While there is plenty of visible talent, capital, and mentorship on the Front Range, I believe the vast majority of the wealth in our state is hiding out in the mountain communities. I mean, a third of Goldman Sachs hangs out in Telluride for three months out of the year.
As a result, you could make the argument that it's better to build a FinTech company in Telluride than in Boulder, simply because of the wealth and the network in those small mountain communities.
So how do we get that capital and that network engaged in those local communities? I think it starts with investment dollars flowing locally. The more the Front Range can support rural ecosystems throughout Colorado in the form of capital and mentorship, the quicker we can unlock more capital from the rest of the state and, eventually, the rest of the country.
What are you excited about at the moment?
From a macro perspective, I'm excited to see how everything shakes out for rural communities, post-COVID. I don't think I'm the only one raising my hand and opting to leave the city. I think, now that the world knows we can work from almost anywhere, geography doesn’t really matter anymore. All you need is an internet connection. I have friends that are highly regarded founders, investors, and operators who are finally moving out to rural Colorado after talking about it for years. I’m really excited to see people with that much talent begin to migrate to rural communities and contribute to those ecosystems.
In rural Colorado specifically, I’m bullish on regions like Canyon City, an area just south of Colorado Springs. It’s an hour and a half from two major airports and it has amazing infrastructure to support the growth of tech. There are some really cool things happening there. And, I see a lot of spillover from that as a result. I see several companies with headquarters in Denver and Boulder that are opening satellite offices in communities like Canyon City. Even an area like southwest Colorado has its own ecosystem with its own community, infrastructure, and leadership. In fact, Durango-based Mercury Payment Systems was one of the largest acquisitions in the history of Colorado, with a purchase price of $1.6 billion.
What’s the most important catalyst for the development of an emerging startup community?
Yeah, so this is an interesting question when thinking about rural. The starting point of a rural community is often three steps before anyone knows it could become a startup ecosystem. So there are some things that these communities require before reaching that point. And, we half jokingly refer to this as “uppers, downers, and outlets”. What we often see is that the communities that are able to kickstart their own startup ecosystems are the ones that build breweries, coffee shops, and recreational space (gyms, hiking trails, etc.). Once those three things enter a community, innovation starts happening. People end up spending more time together coming up with ideas. I think that innovation just tends to happen over caffeine and alcohol. It’s very reminiscent of that London-tea-shop model of collaboration and ideation.
So, based on what we’ve seen, those are a few of the ingredients required for a rural community to really come alive. And, Del Norte Colorado is a perfect example. Del Norte is a tiny community in the southern part of the state. Three Barrel Brewing built a brewery in 2005 and the town built a series of trails in the surrounding mountains. Now, the population is exploding, all the buildings have fresh paint, and you can’t even buy a house because they’re being sold before they hit the market. We’re seeing similar growth in places like Canyon City, Pueblo, and Sterling. Now that there’s a foundation in many of these towns, the next step is to discuss what is required for these places to form their own established startup communities.
At this stage, there are a few things that can accelerate the development of a startup community in rural areas. If a town has a university, that's a huge plus. Fort Lewis is located in the southwest corner of Colorado. It’s no accident that some of the state’s most promising startups are being built there. In addition, an emerging startup community can really benefit from a local patron — someone who’s been a successful founder or operator who can provide mentorship and capital. This person might start a foundation. They might build a local co-working space. They might make angel investments or organize the angel network. More than anything else, it’s someone with a give-first mentality doing a lot of the initial heavy lifting to take the community from budding to legitimized.
What can other emerging startup communities learn from GCVF and its portfolio companies?
I think one thing that’s often overlooked is the fact that emerging startup communities can benefit greatly from getting buy-in from economic development leaders. These organizations are often measured and compensated by how many jobs they create in a given quarter and the extent to which they facilitate economic growth. And so I think it’s important to give these organizations the tools to attract companies into their communities and encourage innovation.
I think that one of the most important things for an emerging startup community to avoid is under-capitalizing startup companies. Sure, talent can be cheaper. Sure, the cost of operating in rural communities is lower. But the capital that a company receives at the earliest stages can make the difference between survival and death. Companies shouldn’t be raising smaller rounds just because they’re in rural areas.
One of the things we’ve been thinking a lot about at GCVF is how to unlock the wealth locked up in mountain towns to benefit those communities. And, we like to refer to the deployment of this capital as “for-profit philanthropy.” Simply put, if you’re willing to give $50,000 to the Aspen Symphony, why not invest $25,000 into a few local businesses? If it doesn’t work out, the investment goes to zero and you still get a tax write-off. If it’s successful, those businesses have created jobs, added value to the community, and provided a return on the initial capital. I truly believe that the most successful movements are deeply rooted in the principals of local sustainability and self reliance.
What's one thing about venture investing that you wish you knew when you first started out?
For one? Patience. It takes time.
But more practically, I’ve learned the hard way that portfolio models are hard. I don't think I fully appreciated that when I first started out. Especially when considering the returns we need as a venture fund. From a pure mathematical basis, we have to say no to a lot of companies that can be good companies. The swath that the traditional portfolio model can invest in is really small. And that means that a lot of great businesses are stuck in that 81% gap. And a lot of great founders are stuck in that 81% gap. And it's not because they have a bad business or they're not going to build something that's great. It's just, they don't fit my math. And I wish I had better insight into that when we got going.