Case Studies

Overview

In 2018, GCVF won a bid for a “rural Colorado fund manager,” and with it an anchor investment from the State of Colorado Venture Capital Authority (VCA). Thereafter, they raised additional private capital, including from the Gates Family Foundation, to reach a $17.5M Fund I. The team also raised an operating capital grant from the EDA.

GCVF is currently raising a $25M Fund II with the same rural Colorado strategy.

Investment Strategy

GCVF invests in seed-stage companies headquartered in rural Colorado. GCVF uses a hybrid VC model by providing flexible financing for rural companies with a mix of equity and revenue-based redeemable equity. The team expects to invest in roughly 30 companies over a five-year investment period with 50% reserved for follow-on funding for Greater Colorado Venture Fund II (Fund II). They will write initial equity checks ranging from $250K to $500K, redeemable equity checks from $100K to $250K, and follow-on checks up to $1M. GCVF is targeting a 25% net IRR and 3.0 net MOIC for Fund II.

Hybrid VC Model for Rural America  The traditional VC model does not work in rural communities. GCVF designed a blended portfolio model with 90%+ equity for rapid growth startups and up to 10% redeemable equity for companies not likely to exit or not seeking an exit strategy but interested in growing profitability and maintaining ownership. The redeemable equity strategy enables GCVF to offset fees, recycle capital for future investments, and generate early liquidity for LPs.

GCVF offers traditional seed-stage equity and redeemable equity products for rural Colorado founders.

• SAFE / Convertible Note – $450K average check size with 6-10% target ownership
• Preferred Equity – $450K average check size with 6-10% target ownership
• Redeemable Equity (Indie.vc v3) – GCVF’s typical RBI deal terms include: $200K average check size, paid back over 3-5 years up to a 3x return cap, 3-7% of gross revenue, and 25%+ IRR target.

GCVF Fund II plans to make roughly five redeemable equity investments of $150K on average and to cumulatively produce 25-40% IRR. They leveraged and updated the Indie.vc v3 term sheet that generates returns by collecting quarterly payments of 3-7% on gross revenue, with a grace period of 12-24 months, up to a predetermined return cap of 3x over three to five years. Additionally, they will take a 6-10% equity stake that companies can redeem via quarterly payments up to 90% of the original equity stake. For example, if GCVF takes a 10% equity stake, then the company may redeem 9% of the original 10%. This RBI approach unlocks early liquidity for the fund and allows GCVF to recycle up to 100% of invested capital during the five-year investment period, which can reduce the effective management fee from 2.3% to 1.5% for LPs.

For redeemable equity investments, GCVF will target companies with the following criteria: smaller exit size potential (i.e. unlikely to be a fund returner), profitable or clear path to profitability, high cash-flow business models, 60%+ margins, need investment capital less than 25% of gross revenue, and stable customer acquisition cost and margins.

For the majority of the portfolio, GCVF will make 25+ equity investments in companies with the following criteria: significant exit potential (i.e. can be a fund returner), high-growth potential, and capital-efficient business models.

Overlooked Rural Founders:  GCVF is targeting entrepreneurs in rural Colorado communities outside of the Front Range urban corridor (Fort Collins through Colorado Springs). They do not believe that opportunity is shared equally in Colorado and across the US. In Colorado, 83% of rural counties have median household incomes below the state average and all of the state’s distressed counties are considered rural. GCVF wants to create opportunities for underserved entrepreneurs and help build sustainable communities in rural Colorado. They will invest 100% of capital in rural areas in Colorado, of which at least 50% will go to companies in rural enterprise zones (EZ).

As of June 2022, 55% of Fund I’s companies are located in rural EZs and account for 49% of invested capital. Two of the non-EZ companies, AGILE Space Industries and Revel, were located within two blocks of an EZ, and Ivy Camps is arguably the most rural portfolio company near the Fryingpan but receives mail in a non-EZ location. If included, these three companies increase the rural EZ rate to 67% and 70% of invested capital for Fund I.

The anchor LP Colorado VCA implemented investment criteria for Fund I via a Side Letter Agreement to only invest in rural Colorado-based businesses and to support job creation in rural communities.

Track Record

Fund I (2018, $17.5M) – GCVF has invested $12.5M+ in 27 portfolio companies out of its 30 portfolio size target through Q2 2022. GCVF has recycled several early exits to pay for nine additional investments and deployed 105% of capital called, meaningfully improving returns and offsetting fees for their LPs. The fund generated a 1.8x TVPI, 0.7x DPI, and 29.8% net IRR as of Q2 2022. Portfolio companies include:

• AGILE Space Industries (Durango, CO) is an aerospace company that combines rapid propulsion development with on-site diagnostic testing to provide mission-optimized solutions.
• Felt (Telluride, CO) makes handwritten cards for the next generation of working professionals.
• Glade (Breckenridge, CO) makes premium ski goggles, helmets, and glasses.
• Marble Distilling Co. (Carbondale, CO) is a sustainable craft distillery and boutique luxury inn.
• MUNIRevs (Dolores, CO) provides paperless automation for tax, licensing, and compliance for local governments. The company was acquired in 2021 by Austin-based GovOS.
• REVER (Eagle, CO) is “Strava for motorcyclists” with an online tracking and community app. The company was acquired in 2020  by Comoto Holdings.
• Western Rise (Telluride, CO) is a performance lifestyle apparel brand.

Fund II Structure

• Management Company: Greater Colorado Venture Fund GP, LLC (Colorado LLC)
• Fund: Greater Colorado Venture Fund II, LP (Delaware LP)
• Fund Type: Rule 506(b)
• GPs: Marc Nager and Cory Finney

Fund II Terms

• Target Fund Size: $25M
• GP Commitment: 0.5% of fund size
• Investment Period: 5 years
• Fund Life: 10 years with up to 2 years with GP consent, and then an additional 2 one-year extensions with LP consent
• Management Fee: 2.5% of committed capital during Investment Period; 1.75% of committed capital thereafter
• Carried Interest: 20%
• Preferred Return: 1x to LPs
• Key Persons: Marc Nager and Cory Finney