Startups  October 3, 2018

Startups find funds from many sources

Entrepreneurs trying to build new companies face never-ending work demands not to mention personal financial pressure for company founders.

Zoe Welz, CEO and co-founder of Uzio Technology

“You’re trying to build a company while also trying to raise your [funding] round,” said Zoe Welz, CEO and co-founder of Uzio Technology — an agriculture technology company based in Boulder whose product is a smart electric fence for livestock farmers. “It’s challenging if you don’t have another source of income or you don’t have a savings account to pull from. I personally had just graduated [from college] and went straight into building the company, so I genuinely don’t know how I’m going to pay rent most months. … I wake up in the middle of the night thinking about it, but I like it,” said Welz. “I think it’s great, and Boulder and Denver, this entire side of the state, is one of the coolest places to be doing it.”

It seems other entrepreneurs agree with Welz. According to the first Boulder Innovation Venture Report, released earlier this year by the Boulder Chamber’s Boulder Economic Council, Boulder’s economy, in particular, is a national leader in startup innovation and entrepreneurship.

Form D is used to file a notice of an exempt offering of securities with the Securities and Exchange Commission. According to the report, the filings represent private investment in startups and small businesses; a greater number of Form D filings within a geographic location is a direct indication of a high level of startup and funding activity. The report showed that Boulder has the second-highest measure among all peer cities, completing 1.12 Form D filings per 1,000 residents.

Here are some of the ways entrepreneurs in Boulder, and throughout Colorado, find funding for their companies.

Venture capital

Venture capital is a dominant source of funding for young companies; venture capital firms raise a large fund of money and then select a portfolio of companies for investments. According to the Boulder Innovation Venture Report, over a fifth of current public U.S. companies have received venture capital funding. The report showed that since 2012, 41 percent of all venture capital in Colorado was invested in Boulder startups. Boulder also has the second-highest per capita venture capital investment in comparison to peer communities.

Welz advises fellow entrepreneurs to take it slow when the time comes to raise venture capital, and to carefully vet and consider compatibility before proceeding.

“One thing that I think a lot of companies don’t know is, if you’re working with a venture capitalist typically they will have ownership and decision-making power in your company,” said Welz. “So, you want to be certain that the investor is someone you’re going to want to work with for a long time. When you get to that point you might not exit your company for, like, 10 years and you’re working with that investor that entire time.”

Toby Krout, executive director and co-founder of Boomtown Accelerators, wants to see entrepreneurs and venture capitalists alike shift their focus from raising a lot of money as soon as possible to focusing on creating great products and supporting founders.

“We believe that venture capital in general has a very big megaphone and they have largely convinced a generation of entrepreneurs that the most important thing is for them to get a check from an angel investor or a venture capitalist, when in reality the most important thing is for that startup to really focus on a customer and problem,” said Krout.

According to Krout, most venture capitalists follow the approach of investing in a high number of startups with the assumption that a high percentage of them will fail, but that the few that succeed will make enough money to overcome the investor’s losses.

“The problem with that approach is it just accepts the fact that there’s going to be a lot of losses and if you’re an entrepreneur, that’s not really the best mode of thinking,” said Krout. “We just think there’s way too much focus on getting venture capital and we think there should be a lot more attention on the startup and on generating revenue from customers. … We’re not anti-venture capital, but our point is each case is different and the specifics of each startup really matter.”

Angel investors

While venture capitalists work for a capital firm, angel investors are typically a single person using their own capital to invest. Rockies Ventures Club defines an angel investor as “a high net worth individual with a net worth, excluding their home, of $1 million or more, or who has an income of $200,000 per year (or $300,000 for a married couple) with the expectation that this income will continue in the future.”

Where venture capitalists usually expect to see 10 times the return on their investment, angel investors, who typically invest in companies earlier than venture capitalists and, therefore, take a greater risk, expect a much smaller return (two to three times the return on investment).

Welz said she’s getting ready to begin looking for angel investors to invest in Uzio Technology. She plans to use tools like the website Angel List, where entrepreneurs can find a list of angel investors in their city or region.

“You have to be really tactical [when approaching angel investors], it’s a lot of work,” said Welz. “People think that they’re going to go raise a seed round or raise a million dollars in a short period of time, but it takes longer. So, if I go on Angel List and see a few like-minded angel investors who I think I’d be interested in talking to, I’ll go search them on LinkedIn and see if I have any mutual connections with them or even a first connection and then I’ll grab coffee with that mutual connection and see if they can then maybe introduce me. So it’s what connections do you have and how can you utilize them to get to your main goal.”

The advantage and the disadvantage for an entrepreneur taking funding from an angel investor is one in the same, said Welz.

“The main pro of angel investors is that these are people who really believe in your team and are taking a big risk for you without confirmation of large return,” she said. “… But if you don’t succeed, you’ve then lost one of your biggest funder’s money and I think that comes with a strong emotional burden.”

Startup accelerators

Accelerators and incubators support early-stage companies through education, mentorship and, in many cases, funding. Examples of Colorado-based accelerators include Techstars, Mergelane, Boomtown and Innosphere.

Innosphere accelerator, which has offices in Fort Collins, Boulder and Denver, has its own seed stage venture capital fund, Innosphere Fund, available exclusively to companies that are currently participating in or have graduated from the Innosphere accelerator. Innosphere Fund’s model is unique, said Joey Davis, principal at the company.

“We’re sort of unique in that we’re exclusively for the Innosphere client companies and they have to fit a certain profile for us to invest,” said Davis. “So they have to be what are considered early exit companies … traditional venture capital investments will go on for eight, 10, 12 years before a company exits — meaning, like, an M&A or an IPO transaction after the investment — but the Innosphere Fund focuses exclusively on companies that are early exit candidates, meaning that two to three years post investment there’s an opportunity for that company to have a successful exit.”

Welz participated in Catalyze CU, an accelerator at the University of Colorado Boulder, available to university students, faculty and staff. Catalyze is a 10-week summer accelerator; it offers participants equity-free grants, office space and mentorship, among other perks and tools. Welz used her time there to work on the prototype for Uzio Technology. She said the real value in an accelerator program is the experience itself.

“Many of [Boulder’s accelerators] do come with some sort of funding for a certain percentage of equity, but they only last for a few months so I don’t think any startup should do an accelerator for funding, they should be more drawn to it for the learning experience it offers and to be immersed in that community,” said Welz. “But if you are [part of] a startup that has an idea and you want to gain that rich learning experience, then I think it’s worth it.”

Krout is a self-proclaimed cynic when it comes to accelerators because, he said, too often they don’t put the founder first.

“I think you have some accelerators that are kind of the first ones to market that started a decade ago and if you really look at the mechanics, they’re more like funds,” said Krout. “They have hundreds of millions of dollars behind them and they’re really trying to place as many deals as possible.”

“There’s accelerators like [Boomtown] where we’re not raising hundreds of millions of dollars and not really behaving like a firm and so I think our responsibility is the entrepreneur,” he said. “And with that shift of mindset, then we’re not trying to just deploy capital, we’re trying to create great businesses, and when we do that it does serve also investors.”

Family offices

Family offices, like Boulder’s Crestone Capital, often come in with funding during what Davis calls the startup stage, which follows, he said, the launch phase and precedes the scaleup phase.

“Launch phase companies … typically get their first funding from friends and family,” said Davis. “Often times they’ll dip into their own savings or 401K or they’ll take on debt to start their company. … Startups are companies that are already gaining traction. They’ve already gone through the friends and family stage, they’ve done customer discovery and customer acquisition and they may already have $500,000 to $1 million of revenue.”

These companies will typically look to angel investors or family offices.

“[Family offices] are sort of a unique structure where it’s typically one or multiple very wealthy families who have hired sort of their own institutional investment team,” said Davis. “If you’re wealthy enough and have a big enough portfolio of assets to be managed, they’ll have asset managers and people who work directly for them to manage and invest on their behalf. Often times those folks will invest in startup companies.”


Boulder was the leading recipient of total per capita funding from the Small Business Innovation Research and Small Business Technology Transfer programs from 2010-2017, according to the Boulder Innovation Venture report. During that time, the per capita funding level was $1,119 in Boulder County; the next closest metro area was Boston, with $424.

Both of these grant programs are focused on research and development, particularly in the areas of technology innovation and scientific research. They are coordinated and monitored by the United States Small Business Administration.

Welz started her company with a grant from the Engineering Excellence Fund, which is available to students in the College of Engineering at the University of Colorado Boulder. Welz said she encourages other university students to explore what grant opportunities are available through their school.

One of the biggest advantages to grant funding is that it doesn’t have to be repaid. However, many grant programs, like the Small Business Innovation Research and Small Business Technology Transfer programs, are highly competitive and have strict eligibility guidelines. Federal grants, in particular, are also subject to intense monitoring and reporting.


There are two types of crowdfunding, rewards-based crowdfunding and equity crowdfunding. In both, an entrepreneur raises small contributions from many individuals to help them reach their goal. The biggest rewards-based crowdfunding platforms are Kickstarter and Indiegogo.

Welz said this can be a great way to find new customers while raising capital.

“If people are willing to put money into your campaign, then they’re probably willing to buy your product,” she said. “Getting customer validation is hard and this is a great way to do it. If you promote your campaign right, you might also attract new customers you wouldn’t have reached before.”

On the other hand, said Welz, these platforms take at least 5 percent of the money you raise and, on Kickstarter, if your campaign doesn’t reach its goal, you don’t receive any funding at all.

“If you have a wildly successful campaign and people put in orders for your product, then there’s pressure for you to deliver quickly,” said Welz. “For example, if you have a product that’s hardware-related and you’re used to manufacturing in-house, but you get 10,000 orders for it on Kickstarter and were only expecting to get 100, now you need to find a way to manufacture that many and you might not have the right facility or team for that yet.”

Contributors to a rewards-based crowdfunding campaign may get anything from a handwritten thank you note to the company’s product in exchange for the contribution.

Equity crowdfunding is a little different; an entrepreneur’s audience in equity crowdfunding is the investor, rather than the customer.

“Equity crowdfunding sites find accredited investors who will invest into your company for a certain percentage of equity,” said Welz. “If you’re trying to grow fast and aren’t worried about giving up equity in your company, then this might be a good route.”

See related story.

Entrepreneurs trying to build new companies face never-ending work demands not to mention personal financial pressure for company founders.

Zoe Welz, CEO and co-founder of Uzio Technology

“You’re trying to build a company while also trying to raise your [funding] round,” said Zoe Welz, CEO and co-founder of Uzio Technology — an agriculture technology company based in Boulder whose product is a smart electric fence for livestock farmers. “It’s challenging if you don’t have another source of income…

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