Denver Startups See Investment Surge After Big Tech Arrival

Global Venture Capital Trends and Denver's Rise

Worldwide increases in startup funding have prompted extensive analysis by The Exchange, extending its coverage to diverse markets including Southeast Asia, Europe, Africa, and Latin America.

Consistent with global trends, the United States has experienced a surge in venture capital activity. Cities like Boston, the Midwest, and Atlanta have all demonstrated strong performance.

Denver and Boulder: Emerging Venture Hubs

Denver, specifically, is exhibiting a similar upward trajectory. Recent data gathered from PitchBook and CB Insights, coupled with insights from local companies, reveals a notable increase in venture capital investment.

This growth follows substantial investments made by major technology companies in Denver and the neighboring city of Boulder.

These initial investments attracted a skilled workforce, which has subsequently fostered a thriving ecosystem of technology talent and capital within the region.

Understanding Denver's Venture Capital Performance

Let's examine the specifics of Denver’s venture capital results. It’s important to remember the companies that initially established a presence in the area.

Their early commitment played a crucial role in attracting the talent pool that now fuels the region’s innovation and investment landscape.

Key Factors Driving Growth

• Increased funding availability.
• Influx of skilled technology professionals.
• Strategic investments by leading tech firms.

The combination of these factors has positioned Denver as a significant and rapidly expanding center for venture capital activity.

This trend is expected to continue as the city further solidifies its position within the broader technology ecosystem.

The Growing Tech Presence in Denver

Analysis of major technology company earnings reports frequently reveals the substantial size of their workforces. These organizations employ a significant number of individuals globally. Alphabet, for instance, reported exceeding 150,000 employees at the close of Q3 2021, an increase from the 132,000+ employees reported in the same quarter of the previous year.

Denver has become a focal point for tech companies, attracting interest from industry leaders like Microsoft. Microsoft maintains a considerable presence in Boulder, located approximately 40 miles from Denver.

Early Investments and Expansion

Google demonstrated its commitment to the region with a $131 million investment in a Boulder campus in 2018. This further illustrates the growing appeal of the Denver-Boulder corridor. Some companies address commuting challenges by maintaining offices in both cities.

Facebook initiated hiring efforts in Denver in 2017, subsequently establishing an office in the city in 2018. Microsoft concurrently constructed a technology center within Denver itself.

Beyond the Major Players

The appeal of Denver extends beyond just the largest tech corporations. Companies in the tech sector’s mid-market are also establishing a foothold. Service Express, a Michigan-based company, opened a Denver office in 2016, demonstrating that the city is attracting a diverse range of tech businesses.

Key Denver Tech Employers

The largest technology employers in Denver include well-known names in the industry. According to data from the Denver Business Journal, Gusto, a human resources platform, and Guild Education, an edtech startup, are among the companies with the most substantial workforces in the city.

• Gusto reportedly employs 800 of its 1,400 employees in Denver.
• Guild Education has 650 of its 768 employees based in Denver.

A Rich History of Tech Investment

A deeper investigation into the history of Denver and Boulder reveals a more extensive pattern of technology investment than initially expected. This highlights the widespread expansion of the tech industry and the increasing number of companies choosing to establish operations in the Denver area. The region’s growth in the tech sector is truly noteworthy.

Denver's Rising Startup Scene

Denver has increasingly become a focal point for us, particularly following our examination of the startup environment in the Midwest. This interest stems from significant funding rounds secured by companies like Guild Education, which raised $150 million in a Series E funding round earlier this year.

This investment valued Guild Education at $3.75 billion. Similarly, Gusto completed a $175 million Series E raise in August, achieving a valuation of approximately $9.5 billion.

Gusto's Expansion and Denver's Role

Gusto CEO Josh Reeves recently shared insights with TechCrunch regarding his company’s acquisition of another startup. During that conversation, we also inquired about Denver’s importance to Gusto.

Reeves explained that Gusto has adopted a four-hub operational model. This model includes Denver, San Francisco, New York, and a dedicated “remote” team.

Despite company growth to around 2,000 employees – internally referred to as “Gusties” – Denver remains Gusto’s largest office location.

Venture Capital and Geographical Shifts

The expansion of Gusto’s operational footprint is connected to evolving dynamics within the venture capital landscape. These changes are, somewhat paradoxically, benefiting the multiunicorn.

As Gusto increases its geographical distribution and embraces remote work options, venture capitalists are broadening their scope. They are now considering a wider range of startup hubs as potential investment targets.

This shift in perspective is contributing to the growth and recognition of cities like Denver as viable centers for innovation and entrepreneurial activity.

Startup Funding in Denver

We will present the data concisely, avoiding excessive detail regarding venture capital trends in the startup ecosystem.

According to a recent report from CB Insights, startups located in Denver secured approximately $2.7 billion in funding throughout 2020. This same data indicates that Denver-based startups have already raised $3.1 billion during the first three quarters of 2021 – a faster accumulation of capital.

PitchBook’s data corroborates the upward trend identified by CB Insights, though their figures suggest a slightly higher total of $3.5 billion raised by Denver startups as of Q3 2021.

These amounts represent a significant influx of investment for a metropolitan area with a population of 3.6 million residents.

Key Data Points

• CB Insights: $2.7 billion raised in Denver in 2020.
• CB Insights: $3.1 billion raised through Q3 2021.
• PitchBook: $3.5 billion raised through Q3 2021.
• Denver Metro Population: 3.6 million.

The difference in reported figures between CB Insights and PitchBook highlights the inherent variability in tracking startup fundraising data.

Regardless of the precise number, the trend is clear: Denver is experiencing substantial growth in venture capital investment.

The Shift in Capital Investment

The evolving patterns of capital flows are being propelled by the same factors that are benefiting companies like Gusto: a growing acceptance of remote work facilitated by platforms such as Zoom. This has broadened the scope for both remote investment and remote employment opportunities.

Following a recent $52.5 million funding round for Denver-based digital mortgage solutions provider Maxwell, we sought insights from its CEO, John Paasonen. He shared, via email, that while Colorado-based businesses are now securing significant venture capital, it was previously common for venture capitalists to state a preference for investing solely in Silicon Valley-based companies.

Paasonen observes that this sentiment is no longer prevalent among venture capitalists. Indeed, Denver’s central location, often a disadvantage, may now be a key asset for the city.

According to Paasonen, “Denver’s position in the heart of the country, coupled with a major airport hub, offers considerable advantages.” He highlights the ability to travel for meetings and return home the same day, maintaining a work-life balance with family commitments.

The term “hub” aptly describes how companies perceive Denver. Palantir’s decision to relocate its headquarters to Denver in August 2020, as reported by the Denver Business Journal, included a commitment to maintaining a distributed workforce. The initial plan to hire 250 local employees remained significantly smaller than their 2019 global headcount of 2,500.

This aligns with Gusto’s approach of Denver being one of several locations, though with a larger presence in their case. While Gusto is a major tech employer in the area, the largest employers are actually Dish Network and Arrow Electronics, both Fortune 500 companies.

“Denver currently boasts a vibrant innovation and entrepreneurial ecosystem, particularly within the technology sector,” Paasonen stated. “Major tech firms, including Facebook, Amazon, Salesforce, Slack, and Zoom, all maintain a presence in Denver.” He further noted that some companies have relocated entirely to Denver, with local teams now exceeding their Bay Area counterparts.

Paasonen anticipates that “this trend will continue to gain momentum as companies prioritize affordability, enhanced lifestyle options for employees, and a favorable business environment.”

Given Denver’s existing talent pool, attracting further skilled professionals can only strengthen its position, and data suggests this is occurring. “CBRE’s 2021 Scoring Tech Talent report indicates a 31% increase in Denver’s tech talent between 2015 and 2020,” Paasonen pointed out. “LinkedIn’s 2020 Workforce Report also revealed continued hiring growth in Denver during the COVID-19 pandemic, while San Francisco experienced a 13% decline.”

The combination of Denver’s substantial talent base and high quality of life, alongside the rise of remote work tools like Zoom, has significantly boosted fundraising activity in the city. “The pandemic has undoubtedly streamlined and improved fundraising for both founders and investors,” Paasonen added.

It is expected that Denver’s fourth-quarter venture capital figures will be at least average, contributing to a total exceeding $4 billion in venture capital for the year – approximately $1,000 per resident. Further growth will be contingent on broader macroeconomic conditions, as it is elsewhere. However, Denver possesses unique strengths that extend beyond general positive trends.

Denver was well-positioned for the surge in remote work and is now benefiting from the resulting influx of venture capital.