VC analyst sees promise in Boise

An analyst with Salt Lake City venture capital firm Epic Ventures said Boise appears to have a strong community of startup companies, though there is a gap in growth-stage funding for companies.

Jack Boren, who spoke in Boise at an event sponsored by the Zions Bank Business Resource Center, said Epic has made deals in Idaho and is excited about potentially making more, though new companies should consider all that comes with taking venture capital money before making a deal.

Boren said Boise is a good market for Epic because it’s close to Salt Lake City and has a mix of established technology companies that could create spinoffs. They include Micron Technology Corp. and Hewlett-Packard, as well as newer companies such as Cradlepoint and Clearwater Analytics.

“Anywhere there are tech people congregated you’re going to have spinoffs,” he said Jan. 23. ProClarity is a good example, because that company was acquired by Microsoft and former leaders and employees have gone on to start WhiteCloud Analytics, Sawtooth Ideas, Proskriptive and other companies. Boren said is a smaller version of how Silicon Valley grew in the past 50 years.

“Startups have success and beget other startups and funding as well. Hopefully that funding stays in the area and produces and promotes other funding as well,” he said.

Boise entrepreneurs do have access to local early-stage funding for startups, including angel investors and banks. But they don’t have the millions that can come from growth-stage capital or alternative funding models that can come from venture capital funds.

Epic completed a $1 million deal last year with Meridian company, Redline Recreational Toys, using a funding tool called redeemable equity, which has some of the functions of bank loan and a typical VC investment. Epic takes a 5 percent ownership stake in the company and an additional 40 percent of ownership in warrants that are bought back as the company repays the principle on the loan. Boren said redeemable equity deals are typically for $100,000 to $500,000. Typically, the deals come with 10 percent interest payments, which can be higher than bank loans.

“It’s like debt without the hassles of debt. It is a little more expensive, but that’s to compensate for our risk,” he said. The redeemable equity deals also don’t show up as debt on a company’s balance sheet, which makes it easier to raise money elsewhere.

Redeemable equity deals also let Epic diversify investments, because companies like Redline don’t fall into the same class as typical VC investments, which often are software companies with the potential for high returns.

Before startups look to venture capital firms, they should seek other sources of funding, including from their own wealth as well as family and friends, Boren said. That’s because VC firms want to own part of the company and have a say in operations.

“You’re bringing on another partner,” he said. Pitches to people in an existing social network of friends, bankers, mentors and others are also more likely to succeed.

“If you cold call to Epic, it’s probably not going to go anywhere,” he said. “The things that get further review from us are always from our network.”

Epic is raising money for its fifth venture capital fund. The company also manages Zions SBIC, the bank’s small business investment company.