Northern Colorado Incubator at Work Setting Up New $20M Seed Fund
More money for early stage startups could be coming to Colorado, thanks to ongoing efforts by an incubator based in Fort Collins and a nonprofit lender to small businesses to bring more capital into the northern Colorado region.
Innosphere CEO Mike Freeman said the fund, named the Colorado Catalyst Fund, would support up to 30 startups over a 10-year period. He expects to start making investments next year.
The catalyst fund would be the first community development venture capital fund in Colorado, and it will be managed by the Community Development Venture Capital Alliance, Freeman said. There are about 70 such funds in the U.S., and the alliance has advised or formed more than 40 of them.
While the Innosphere and CEF are setting up the fund, it will be an independent entity set up along the lines of traditional venture funds, Freeman said. The CDVCA will help set up the fund and its investment committee and manage the fund. The portfolio will not be limited to Innosphere or CEF clients.
Although one of the fund’s goals is to develop northern Colorado’s network of startups and investors, it will be making investments expecting to see healthy exits, Freeman said.
The entire amount isn’t a lot by the standards of venture funds, but Freeman believes it is enough, when paired with dollars from other investors in an angel or seed round, to help some startups get off the ground.
“It’s going to absolutely need investment from outsiders [in syndicates],” Freeman said. “We want to be in early on in a good deal that’s Colorado based, but other investors will have to come in.”
The catalyst fund will set aside money for Series A rounds for startups in its portfolio that are succeeding, he said.
Freeman intends to have the fund up and running by April.
“There’s still quite a lot of work to do,” he said.
The to-do list includes working out legal details. Morrison & Foerster will provide legal counsel to the fund on a pro bono basis.
The Innosphere and CEF also has to finalize commitments from investors, who are most likely to be local high net worth individuals, banks, and foundations, Freeman said. But enough have promised money to make Freeman confident enough to publicly announce the fund.
The Innosphere is an incubator in Fort Collins that specializes in providing space and services to cleantech, enterprise IT, and medical device companies, Freeman said. Unlike most incubators, the Innosphere’s facility in Fort Collins has lab space. It also has a facility in Golden, where it works in partnership with the National Renewable Energy Laboratory.
The incubator is a 14-year old nonprofit, but it recently has branched out in a new direction, according to Freeman. Since the 2008-09 recession, the amount of money available for startups in their infancy has dropped, and that’s had a lasting negative impact on northern Colorado, he believes.
“Our feeling is that on an annual basis, our client companies are underfunded by about $10 million,” Freeman said.
To rectify that, the Innosphere has been working on a capital access program, which includes working with banks to expand loan programs. The nonprofit also wanted to develop the network of angel investors in northern Colorado to increase the chances entrepreneurs have of finding equity investors.
“This component is the last piece of the puzzle,” Freeman said.
The Colorado Catalyst Fund is the latest effort to spur entrepreneurship in Fort Collins. In October, an investment firm started by the founder of Otterbox announced it was starting a $250,000 business plan competition. The finals will be in May, and competitors need to register by Dec. 15.