My friend, Pang, and I showing off our donor bandages.

I have written about ARUP Blood Services numerous times as this is my favorite volunteer experience.  You can read some of my previous posts here, here and here.  I will put in yet another plug, though, that they are always looking for blood and platelet donors as they are the sole providers for many of the local hospitals (including Huntsman Cancer Institute).  You can get more information from their site.

The University Venture Fund is another great organization, a student ran venture capital firm with $18m to invest.  (You can read a previous post of mine here.) If you are a student based in Utah, this is an excellent opportunity and I would greatly urge you to get involved.  If you are an investor, consider partnering with this group.  They provide free due diligence with the hopes of piggy-backing on investments.

Have any of you readers volunteered this week?  If so, with what organizations?

Back in 2007 I created a list of private equity investors in Utah.  Over the past couple years this list has shifted, making an updated list necessary.

Angels

Angel investors provide the initial capital to a start-up, investing amounts usually up to $1m in exchange for common stock.

• Olympus Angels
  
• Utah Angels
• Top of Utah Angels / Grow Utah
  
• Salt Lake Life Science Angels
• Park City Angels
• Southern Utah Dixie Angels
• Kickstart

Venture Capital

Venture capitalists provide early-stage and growth capital, typically investing in industries such as information technology, clean technology, and life sciences.

• EPIC Ventures
• vSpring Capital
  
• UV Partners
  
• Canopy Ventures
• Peterson Ventures
• Prospector Equity Capital
• Double Eagle Ventures (Gary Kennedy)
  
• EsNet Group
• University Venture Fund
  
• Peer Ventures
• Vast Equity

Private Equity

The term private equity can be used for any investor that invests in non-public companies, but usually is in reference to investors that focus on non-public companies with revenues.  Below are the late stage and buy-out firms in Utah. The late stage firms finance companies that are already cash flow positive and need financing for expansion or an additional round before a liquidation. The buy-out firms actually buy a company, finding a new management team (or personally managing the company themselves) to turn the business towards profitability.

• Sorenson Capital
• Peterson Partners
• Cross Creek Capital
  
• DW Healthcare Partners
• Banyan Ventures
• Dolphin Capital
• Mercato
• Leucadia
• Huntsman Gay Global Capital

Venture Lenders

Venture lenders provide a financing option that extends the capital between equity rounds. It is a debt plus warrant structure, preserving the equity of the company but providing potential upside for the lender.

• UTFC / Innovations Venture
  
• Zions Bank Venture Lending

Am I missing any investors?  If so, please comment or email me.

The University Venture Fund is a student ran venture capital firm that has raised $18m from outside limited partners and has a current portfolio of 17 investments.  The organization has partnered with numerous private equity partners, providing free due diligence in return for the real life due diligence experience.  In return, the private equity firms often carve out an investment piece, allowing UVF to piggyback if interested.  All investments are decided by the students, but must be approved by their investment committee, compromised of local private equity investors.

My volunteer work with UVF consists of document review, ensuring that all research points are considered during the due diligence process, and providing additional insight into the role of a VC analyst.

If you are a student at the University of Utah, BYU, or Utah State University, and are interested in venture capital (no matter your field of study) I would urge you to get involved with this organization.

• Lack of Liquidity –  One of the biggest issues is the current lack of liquidity. The venture capitalists’ job is to create a hopefully good return for their investors, with returns coming through such liquidation events as a merger, acquisition, or an initial public offering.  For over the past year the public markets have essentially been frozen with the National Venture Capital Association actually proclaiming a “Capital Market Crisis“.  As a result, there has been mention of an emerging secondary market for private stock.  Thankfully, though, within this last quarter a handful of companies have gone public (I am not sure the total since the data is not yet out, but I want to say at least 2 or 3 companies with Open Table being the first).
• Difficult Fundraising Environment – Limited Partners have halted or stepped back from venture due to huge hits on their public investments, sometimes resulting in their portfolios experiencing the denominator effect.  The combination of lack of liquidity and LPs holding their money close while the market stabilizes has resulted in fundraising being extremely difficult for anyone except top tier funds.
• Smaller Fund Sizes - Venture firms have reacted to this rigid environment by raising smaller funds.
• Some Changes in the Venture Players - There have been some VCs who have closed shop, but there are also new entrants (i.e. Javelin and Founder Collective).
• Innovators Continue to Innovate – The innovators keep creating, as they should.  There are positives to this economic environment (for example lack of competition) as long as start-ups realize that funding is still out there, though perhaps a bit harder to find.  If anything, this type of environment creates entrepreneurs that are wise and efficient with the capital raised.

While reading the private equity news the other day, I saw a link to an interview with Steve Jurvetson and Tim Draper.  Nothing about the interview was too profound, but I enjoyed seeing these VC titans talking about the same trends I was seeing.  I must admit that my favorite part was when Tim and Steve were continually questioned about different “important” financial and numbers, none of which relevant to the venture capital realm or these two investors.

Unfortunately I could not embed the video directly, but the above image is linked to the video feed.

When he wrote that post I was intrigued to look further in the Southwest region, the main investment region for EPIC Ventures.  I had looked out of personal interest right after Q1, but had not taken the time to post up on my blog.  But with Q2 near completion, I thought I would post this information and follow up with Q2 analysis when the numbers were released later this month.

I used the same data as Fred and also annualized Q1 of 2009, creating similar charts but with the addition of the SouthWest region. (Note that MoneyTree Report defines the Southwest as Utah, New Mexico, Arizona and Nevada.  EPIC does invest out of this region but our offices are located in Utah and New Mexico and we do like to invest close to home.)

My percentage change in capital investment did quibble slightly with Fred’s data in the sense that I found the percentage drops to be a bit larger in each area. I believe the difference in our data is due to Fred using more estimations and I using exact calculations. (And if anyone is incorrect, it would be me.=))  I show that there were some fairly significant drops in each region: 57% in Silicon Valley, 54% in New England and 31% in New York.  But interestingly, the biggest drop (out of the four charted above) was in the Southwest.  Though it looks minimal on the chart, investments dropped from $471m in 2008 to an $160m estimate in 2009, creating a 66% decrease.

The deal flow saw a decrease, but not as significant as the capital invested.  For instance looking at the decline of 2009 by the average number (not the 2008 only number which was used for the above capital percentage change), NY Metro was down by 13%.  A notable drop, but not nearly as much as capital invested.  Still the SouthWest region saw the largest decrease out of the four charted groups.

With Q2 numbers due in the near future, I am going to wait to opine on reasonings for this significant regional decline. However, feel free to post any thoughts or opinions in the mean time.

Last year I posted about the due diligence process and a business plan breakdown, but over time my viewpoints on analysis have slightly shifted. It seems that a good portion of deals I review are past the earliest stage and have added a couple members of management and possibly infused seed capital. For the past couple months I have been experimenting with the approach of looking at each company from the view points of opportunity and the company’s ability to capture this opportunity.

The opportunity of a deal consists of the main pieces of why and how a problem is being solved, i.e. the technology, product, business model and market. Basically the analysis of ‘is this a technology that can be used to create a product that is needed (and wanted) in the marketplace and priced in a range that will attract consumer dollars.’

The opportunity ‘capturability’ (no, this is not really a word but I have yet to find an accurate descriptor) lies in the factors that will push the aforementioned opportunity into fruition, a trickier mix of variables to encounter. The ability to capitalize on an opportunity analyzes the competition and the levels of competitive presence in the market, financial stability, market risks … but mostly the strength of the management team. Basically, ‘does the summation of the competitors in the marketplace plus the known risks equal a market gap that can be seized by this management team and the capital they have received?’

The overlay of the ability to capture and the opportunity itself will never perfectly align as the alignment discrepancy is the risk of the deal, the risk the investor must decide if they are willing to take to earn the projected reward.

Right now I am using this approach without quantifying each variable, which would be do-able. I have yet to quantify as it seems that an integral part of our investment decision is based on our gut feel towards the management team, something quite hard to explain in numbers. I also use this approach to simply assist me in thinking about the relationship and correlation of all the business elements.

Below are some of my favorite shirt designs.

Love it!

This is in reference to Colorado-based venture capitalist Brad Feld who has a computer on his treadmill. His blog is great.

This is by far my personal favorite. (Sorry, I hope no one in Utah is offended.)

He he he he… cracks me up!

Angels: There are four organized angel groups and a couple of individuals within Salt Lake and Provo. I have listed the organizations only as I believe the individuals seek out their own deal flow. The angels will often invest at the earliest stage of the business, even as early as conception. Certain venture players will also invest at the seed stage (including Wasatch) but this stage is the angel’s main focus.

• Olympus Angels
• Utah Angels
• Top of Utah Angels / Grow Utah
  
• Salt Lake Life Science Angels

Local Venture Capital Firms: Venture capitalists provide early-stage and growth capital. Due to the venture capital model, VC’s usually only invest in high-technology deals able to generate high margins.

• Wasatch Venture Fund
• vSpring Capital
• UV Partners
• Canopy Ventures
• Prospector Equity Capital
• Double Eagle Ventures
• EsNet
• University Venture Fund
• Vast Equity (in the formation process)
• Another one is being formed, but due to the fact that I am unsure on their public status I will not post the name on my blog.

Local Private Equity Firms: I have lumped the later stage firms and buyout firms together in the Private Equity list since there are only a handful of these investors in Utah. The later stage firms finance companies that are already cash flow positive and need financing for expansion or in preparation for a liquidation. The buy-out firms actually buy a company and find a new management team (or personally manage the company) to turn the business towards profitability.

• Sorenson Capital
• Peterson Partners
• Cross Creek Capital
• DW Healthcare Partners
• Banyan Ventures
• Two other spin-outs are being formed, but once again I don’t know their public status.

Venture Lending: Venture lenders are a financing option that extends the capital between equity rounds. It is debt plus warrant structure, preserving the equity of the company but providing potential upside for the lender. UTFC was the only venture lender until a couple months ago when Zions created a venture lending arm.

• UTFC
• Zions Bank Venture Lending

The due diligence process entails a thorough look at all aspects of the business including primary and secondary research and monitoring over a period of time, usually taking 3 – 6 months to complete. Everything from market size to customer calls to a number of meetings with management will take place. It is important for all business pieces to be thoroughly investigated, but three of which stand out at the time of investment:

1. Management
2. Market
3. Deal Structure

1) Management – It is a belief in the VC world that it is better to invest in a mediocre technology with a phenomenal management team, rather than a phenomenal technology with a mediocre team. The reasoning being that it is the team that lines up the deals, structures the business model, rolls the product out to market with accurate timing and keeps the passion alive in the business.

It is also common for venture capitalist to back the same entrepreneur in a number of different ventures if the entrepreneur has previously proven his/her talent.

2) Market – The market size and growth is obviously a needed variable due to the point that without a market there isn’t a need for the product/service, nor the possibility of creating a profitable business that can create a return to the investors.

3) Deal structure – Deal structure contains many different variables many of which will be addressed in later posts. Mainly, the structure needs to make sense through its pre-money valuation by being in line with the market comparables and structured to allow the venture capitalist the opportunity for a return at the time of an exit. Complementary to the valuation is ownership. The venture capitalist expects a certain amount of ownership with an investment but wants to keep the majority for the founder and team to keep success as a motivating factor. If previous investors have taken too much equity it is real hard for a venture capitalist to come in without diluting the owner.