This month, Utah Business partnered with Dentons Durham Jones Pinegar to host a roundtable event featuring Utah’s venture capital leaders. Moderated by Cydni Tetro of Brandless, Inc., they discussed raising capital, emerging industries, emphasizing diversity, and more. Here are a few highlights from the event.
We’ve had a bull market for the last number of years. What does that mean as we head into 2022? Which industries should we be watching?
Jeremy Neilson | Co-founder and CEO | Assure
The blockchain space. We did see crypto and blockchain tank a couple years ago, but it came back pretty big in 2021. And with NFTs, the blockchain, and crypto, it’s back in a big way. I think you’re going to see that next wave—almost like the “.com”—it got big and frothy and it tanked. Then people figured it out and much more stable and thought-through businesses and ideas came out.
Nate McBride | Partner and CFO | Tamarak Capital
I don’t know if it’s a “canary in a coal mine” thing, but we’re seeing a lot of life sciences companies emerge—all related to previous federal dollars that went into Covid response. So they were flush with that cash, and now they’re looking for additional investment capital. We’re also seeing lot of AI in relation to workplace automation. Workplace replacement—that’s the next big thing. And it’s also, in a sense, Covid-related. You see the workforce right now and the difficulty people are having with staffing, so you’re seeing companies say, “Well, if that’s going to be the future, we better accelerate our ability to replace that workforce through AI."
Jack Boren | Managing Director | EPIC Ventures
If you look at 2020 versus 2021, we saw 2x increase in US-based venture capital investment in the healthcare sector. That’s pretty broadly defined, but we went from $14-something billion to, I think, close to $30 in 2021. A lot of investors got really excited about the positive regulatory tailwinds in the healthcare ecosystem and pumped capital in, and really inflated valuations and started tackling traditional healthcare channels. I think, here, sales cycles are super long. They’re slow to adopt, very slow to change, and very averse to change. Business models will have to pivot to really service higher-velocity opportunities in the healthcare market.
Capital doesn’t go to consumer here. If you want to raise money as a consumer company, you don’t do it in state. What does it mean if we have these emerging industries and capital equations that don’t align?
Jeremy Neilson | Co-founder and CEO | Assure
Can we do better? Absolutely. But Utah is still small. If you compare population base with other states, we’re still not massive. We’ve punched above our weight for many, many years in regards to company creation and successful exits but we’ve never done really, really good about the investment side. With the pandemic and the way people can raise from anywhere, the innovations in FinTech, and all the other stuff going on, I think Utah’s really poised to take advantage of all the money that’s sloshing around looking for a home. Those in Utah, I think, are also waking up and realizing that we should fund our home-grown companies.
Tim Cooley | Executive Director | Park City Angels
It’s the worst when a company is making a million dollars and you can’t get them funding—not even $100,000. I wrote a book on pitch decks, and I can get anyone to sound amazing, but not an e-commerce company in this state. It’s actually really frustrating.
We are getting a lot of people at Park City Angels who just moved here because of the pandemic. We’ve seen a lot more deals come here from New York, New Jersey, all over, which has been awesome. But on the e-commerce side, no person in Park City Angels is an e-commerce person. There are many people here who could be angels in that space but they either don’t participate in angel investing or they don’t fund the e-commerce. They don’t give back. Gaming was huge in Utah many, many years ago—Mortal Kombat came from here, Animal Jam is just down the street—but we don’t put money back into gaming. We don’t even invest in the thing that created us, in some ways.
There are hot markets happening in M&A, SPACs, and IPOs. So let’s talk about each of those.
Tyler Hartmann | VP | Clarke Capital Partners
We’re involved in a SPAC, and it’s highly dependent upon market conditions. We’re seeing more and more companies that planned on going public pulling that because of current market conditions. And there’s a huge oversupply of SPACs. So while we have one and we’re actively looking, the conditions are clearly becoming more unfavorable, and it’ll be highly dependent upon what happens in the public markets at large and how attractive it is for companies to go public. I think with the global issues we’re looking at, like the Russia-Ukraine conflict creating additional uncertainty across the market, I think we would say that we’re probably going to see a lot of SPACs that aren’t going to be able to find deals. There’ll be a reconciliation of that market.
Taylor Jones | Principal | Peterson Ventures
I think it’s going to be a really exciting time to be an investor this year because I think there’s going to be opportunities to invest at lower valuations in really great businesses. But I think if you’re a growth state business and if you don’t have an amazing founding team or your underlying economics of the business are just okay, it’s going to be potentially really hard to raise growth capital this year. So I think the trickle down from all the macroeconomics, the effect on the public markets, they’re going to translate to the private markets. Our counsel to our portfolio companies is, “Let’s be cautious,” and there might need to be 24-30 months of runway to really kind of get through the uncertainty the next little while.
Nick Martineau | Partner | Banyan Ventures
I agree with Taylor, and have some level of skepticism given that a lot of those acquirers in the M&A market are going to be challenged. Interest rates are another question, right? I think a lot of the PE or strategic acquirers rely heavily on LBOs or debt, and if rates increase, we’ll see that’ll put even more pressure on them to do those deals at those types of valuations.
People of color and women are still, by far, the least funded. How do we fix that problem?
Jameson Osmond | Senior Associate | Mountain Pacific Venture Partners
The teams that have diversity of thought and experience are the teams who are more cohesive, more creative, and able to better pivot if needed. They understand how to succeed more.What we try to do at our fund is just promote wherever that’s coming from and focus on those companies. Gender and race aren’t inherent determinants of the diversity, but they’re really highly correlated with it. It’s about assigning the focus—deciding that this is where we’re going to be focusing our time—on these types of diversity.
Trent Christensen | President and CEO | VentureCapital.org
We have a WeROC conference—it stands for Women Entrepreneurs Realizing Opportunities for Capital—that happens every September. But to your point, we get several hundred companies that apply to our program. We only pick 75 of them, but we noticed that we weren’t getting more women entrepreneurs. Just waiting for them to come wasn’t going to be the answer. We had to be dedicated to go out and find them and pull them in, and then develop them through the process. We’re seeing the same thing in the minority markets…If an open door doesn’t result in anything, then the open door doesn’t matter, right? Those problems don’t fix themselves. If there are more female partners in the VCs, then you’re going to see more women getting funded. If there are more minorities in the VCs, you’re going to see more minorities getting funded.
David Stahl | Utah Market President | Hillcrest Bank
As a Utah Black Chamber board member, I appreciate what you guys are doing. People of color or minority backgrounds—they’re underbanked, period. So it’s not that they don’t trust, necessarily, those who don’t look like them. They just don’t trust the system, period. And that’s why banks have a big role to play in creating that bridge. We’re also trying to start a microloan fund dedicated specifically just to funding people—early stage companies, entrepreneurs—of color. We’ll be able to, hopefully, launch that fund later this year, and help these entrepreneurs get their ideas off the ground, so they can come to you for seed capital raises, venture capital raises, and continue to grow that ecosystem.
From a capital perspective, what challenges are you seeing with talent? What are you encouraging your portfolio companies to do to retain talent?
Nate McBride | Partner and CFO | Tamarak Capital
I think it takes investment and being deliberate about it. It takes sitting down and talking to your team members, and we do that at Tamarak. We sit down with our team members and say, “Are you becoming what you want to become here? Are you doing what you want to do here?” And we want to have that discussion early instead of being surprised later on. If someone’s terminated by surprise, that’s a problem. That’s a failure in terms of communication along the way. And if someone quits by surprise, that’s also an issue.
Tanner Potter | Principal | Kickstart
I recently reviewed some of the Cicero Silicon Slopes data on the economy. And three of the things that were really at an all-time high were mental health issues, loneliness, and something like 30-40 percent of employees are looking for other jobs right now. There’s been this huge shift to remote work. And I think it’s particularly hurt the young, new employees at firms. In the past, your first few years, you’re getting acculturated, you’re learning all these skills, you’re watching how people do things. And now you’re at home, you have your manager and you’re on your task, and you’re not getting a bunch of this training.
It always feels a little bit trite to say, “Leadership’s the answer," but it is. And it’s communicating more clearly about your hybrid or remote work life. A lot of people are not clear on exactly what’s required of them. It’s doing a better job of being there, training—especially the young employees. And it’s about having diverse teams, so that more people feel comfortable and feel like they can align with the mission.
David Stahl | Utah Market President | Hillcrest Bank
I think as equity owners and shareholders in these companies, it’s all about making sure that you have the right leaders and you’re investing the right people.I think sometimes we think that just because they’re in the C-suite, they’re equipped to have those discussions and identify those opportunities. I think the role of leaders has changed over the years. What’s the old saying? That people are promoted to the highest level of incompetence? So I think you have to be intentional about who you put in positions and why. Do you have leaders of people or do you have leaders of process? And those are two totally different skillsets.
What are your predictions for Utah’s venture capital space in 2022?
Travis Wilson | Partner | Dentons Durham Jones Pinegar
There’s a lot of momentum in the market. I think there are a lot of earlier stage companies that have been funded, or will be soon. Interest rate issues are real, inflation issues are real, supply chain issues are real. I’m assuming that stays on par.
Jack Boren | Managing Director | EPIC Ventures
I don’t think we’re going to see four to six-month fund deployment cycles anywhere, anymore. Particularly in growth stage. I thought that was crazy what was happening and I don’t think that will continue. I think fund deployment schedules will stretch out a little bit. We’ll still raise large funds. We’ll still invest in a lot of companies, but instead of double-digit new deals in a year, we might be mid-to-high single-digit. I think we’ll be a little bit more selective as an industry.
Nick Martineau | Partner | Banyan Ventures
I think there are some real headwinds, macro-economically speaking, that people are facing— supply chain, inflation, public markets, interest rates—but I think Utah is on really solid ground. If you look at some of the fundamental economics of where we’re at as a state, and even more broadly speaking to the Mountain West, I think there’s a lot to be really optimistic and excited about.
Jameson Osmond | Senior Associate | Mountain Pacific Venture Partners
About one in every $4 goes to a healthcare investment here in Utah. I think that’s going to continue, regardless of the market conditions. I think it’s a great space and Utah’s got a great hub that’s been growing out there in the Salt Lake Valley.
Tim Cooley | Executive Director | Park City Angels
I think virtual [work] has created a great opportunity for people in these other areas—San Francisco, New York—to come here and to create more businesses. We’re seeing a lot of potential entrepreneurs moving to Utah to start something because of all the other companies that have been so successful. I don’t think that’s going to go away. I think we’ll see some really cool ideas coming around, especially in e-commerce space and the e-commerce tech bridge.
Taylor Jones | Principal | Peterson Ventures
I think what we’ve found is really hard is that the long tail of e-commerce is getting so fat. We talk to so many amazing founders here that grow their businesses to $10-30 million in revenue in the Shopify ecosystem, which is fantastic. But I think the challenge for us is that it’s really hard to pick who’s going to get to $30-40 million versus who’s going to get to $400 million. It’s exciting, and people that are coming here are just amazed with the energy—especially the ability just to spin up a DTC brand in the Shopify ecosystem. There are so many life-changing businesses emerging.