Big Sky Revisited

I had the chance to attend the Big Sky Venture Capital Confrence this fall and wrote a story on the opportunities in that region of the country for VCJ. Happened to be thinking about this weekend and thought I might share it with PEHub readers. –Joanna

For most of the year, the posh Montana resort of Big Sky, with its ski-in condos and bear-, moose- and cowhide-themed decor, is precisely the sort of place venture investors go to get away from entrepreneur PowerPoint presentations. Rather than startups, their biggest local financial commitments have been ranches and ski chalets.

For the past three years, however, Northern Rockies entrepreneurs have been looking to expand the investment thesis. Bringing their elevator pitches to the mountain summit, founders have had a modicum of success building up the meager regional presence of venture-backed companies. In the process, they’re also catching the attention of visiting angels and VCs.

“The opportunity to find a diamond in the rough here is intriguing,” says Paul Matteucci, a general partner at U.S. Venture Partners in Menlo Park, Calif., who has a vacation home a few miles away from Big Sky. “I don’t have 40 other VCs to compete with.”

Location, location, location

Looking at the demographics, the Northern Rockies—which encompasses Montana, Wyoming and Idaho—doesn’t appear suited to handle much venture capital competition. With a population of just 3 million, spread over an area twice the size of California, just attending a board meeting can make for a grueling road trip.

But for urban expats, that sense of isolation holds appeal. John O’Donnell, a former Seattle resident and founder of startup incubator TechRanch in Bozeman, says the charm of his new home base stems largely from its middle-of-nowhere feel.

“A few months ago, I saw a cow aimlessly wandering among cars in The Gap parking lot,” he wrote last winter in a local magazine for outdoor enthusiasts. “The irony of the picture seemed to illustrate perfectly the crux of why so many high tech entrepreneurs are moving to Montana.”

“So many” is a relative term. O’Donnell points to a few examples: Jennifer Boulden, co-founder of Ideal Bite, an online publisher of tips about how to live “green,” moved from Washington, D.C., to Montana to launch her business. Andrew Field, founder of 11-year-old Internet company PrintingForLess.com, moved to Montana from the San Francisco Bay Area in 1989. And Don Fornes, a former Silicon Valley investment banker, moved to Big Sky to escape the stresses of city living and start his Internet business, Software Advice.
 
The list of part-time Montanans, meanwhile, includes several venture capitalists and prominent angel investors. Among those with homes or ranches in the area, in addition to Matteucci, are Centennial Ventures Managing Director Jeffrey Schutz, Infinity Financial Technology CEO Roger Lang, and Summit Partners Founding Managing Partner Gregory Avis, whose 17,000-acre ranch in Clyde Park, Mont., was featured in The New York Times.
 
Bob Grady, who spends much of his time at a second home in Jackson Hole, Wyo., explored the idea of creating a regional venture arm on the thesis that “you go where other people aren’t looking.” While that plan has yet to materialize, Carlyle Group’s venture division will be looking to step up investment in the region, he says. Previously, the firm pursued a stake in WellDog, a Wyoming developer of chemical sensing equipment for natural gas exploration, but was outbid. Grady says the firm is in talks with another company in the region.

Although Silicon Valley VCs have occasionally backed companies in the region, most funding has come from firms that are closer. Regular investors in Northern Rockies companies include Seattle-based Buerk Dale Victor, Highway 12 Ventures in Boise; vSpring Capital in Salt Lake City, and angel groups such as Bozeman-based Bridger Capital Network and Keiretsu Forum.

Deal Flow

Regional deal flow is relatively light. At the Big Sky conferences, typically no more than a couple of early stage investments fit USVP’s parameters, Matteucci says. Centennial Ventures’ Schutz, who works out of Denver, also has tempered expectations for investing in the region, noting, “Boise is a third tertiary market, and Bozeman is right behind it.”

In the past two years, at least a half-dozen Montana startups have raised angel and venture funding, predominantly in seed rounds. They include Ligocyte Pharmaceuticals, a developer of drugs that modify immune responses, MTPCS, a wireless service provider, Kids Up, a maker of mobility devices for disabled children, and Sokets, a developer of energy management systems for homes.

Across the broader Northern Rockies region, the deal pipeline is a bit fatter. Companies that raised over $1 million in the last couple of years include aforementioned WellDog, Balihoo, a vertical search company, PakSense, a developer of temperature sensing product labels, and Nurture, which makes frozen baby food.
 
While VCs aren’t exactly flocking to the Northern Rockies, it is a bit easier to get funded now than in 1996, when Field launched PrintingForLess. He recalls meeting with a venture capitalist from a well-known Silicon Valley firm at that time: “He said, ‘Look, I’m really not interested in a business that’s more than 45 minutes from my office.’”
 
Montanans, by contrast, think nothing of driving 200 miles for a high school football game, says Jack Manning an attorney with Dorsey & Whitney in Missoula, Mont., who logs plenty of miles as “the only securities lawyer in Montana and one of the best.” Schutz jokes that at his Montana home, “My nearest neighbors are all within five miles.”

As in most regions striving to build up entrepreneurial infrastructure, university towns are the hotbed of activity. Montana State University in Bozeman, which houses the state’s largest engineering and business schools, runs an active technology transfer office, a bioside system for water treatment, an antibody mapping program, and a genetically modified herpes strain seen as having potential for a vaccine. In neighboring Wyoming, Laramie-based Venture West organizes regular pitching sessions for entrepreneurs in the state’s largest university town.

Track record

As for regional success stories, Bozeman’s biggest venture-backed hit is RightNow Technologies, a developer of Web-based customer support software. It raised $32 million in 1999 and 2000 from backers including Greylock Partners, Summit Partners and Credit Suisse. The company went public in 2004, and its stock has nearly doubled since, with a current market cap just shy of $500 million.

Other fast-growing local companies have taken the bootstrap route, including PrintingforLess and Zoot Enterprises, a credit analysis and loan origination service that operates from a 180-acre corporate campus outside Bozeman.

Idaho, the region’s most populous state, also has the highest exit hit record in the Northern Rockies. Boise is home to Micron Technologies, an $8.5 billion semiconductor device manufacturer that raised venture funding in the 1980s. More recently, AMIS Holdings, a maker of mixed signal semiconductor products based in Pocatello, Idaho, generated some returns for Citicorp Venture Capital and other backers when it went public in 2003.
 
While it’s unlikely that any individual university town or state capital in the region will emerge as a venture capital hotbed, Feld of Foundry Group says there’s enough opportunity for venture capitalists willing to scour deals across the area. “You aggregate some third-tier markets together—say into the Rocky Mountain region,” he says, “and you’ve got a solid second-tier market.”
 
Others might say the region has something in common with Silicon Valley. At least that’s the takeaway from the dining recommendations of Big Sky conference organizers. At the top of their list for networking and fine dining is a local lodge called Buck’s T-4. Of course, this Buck’s is a far cry from the renowned VC breakfast spot of the same name in Woodside, Calif. In Big Sky, Buck’s features antelope, bison, elk and wild boar.