Lewis, Clark inspire capital venture: Highway 12 invests in fast-growing technology startups
By LORI GRANNIS of the Missoulian
Great ideas hatch any number of ways. For some, it's a light bulb overhead. For others, it's the recognition of a crucial piece of the puzzle in a grocery aisle. For Mark Solon of Idaho's Highway 12 Ventures, it was a good read on a Sunday afternoon in 2002.
Solon had just moved to Idaho with his family and was reading "Undaunted Courage" by Stephen E. Ambrose a book detailing the travels of captains Meriwether Lewis and William Clark.
"I was just starting the firm and immediately saw the similarities between Lewis and Clark and so many start-up companies," said the founder and managing partner of Highway 12 Ventures.
Somehow, he wanted to connect the dots.
That happened the moment Solon glanced at a map and saw the long, winding road that connects Idaho to Montana. U.S. Highway 12 runs parallel to the Lewis and Clark trail, and that parallel immediately made sense.
Highway 12 Ventures is an early stage venture capital fund. The big dog fund the firm manages is focused on investments in regional, high-growth, start-up companies in the Intermountain West states of Idaho, Montana, Utah and Colorado, and has more than $100 million.
"That makes ours one of the largest in our region," Solon reported.
With a management team and advisory board that looks like a who's who in the Fortune 1,000, and a combination of 75 years of experience among five partners, qualifying entrepreneurs can expect more than just the idle monetary investment from an angel investor.
"We invest, but we also lend our invaluable advice on operating and financing, we make important introductions to strategic partners and alliances, we counsel on mergers and acquisitions, and we assist in recruiting management teams," said Solon.
Solon, 40, and his partners meet with up to 300 companies a year. For a fortunate three of those, the dream of taking a company global advances and becomes a reality. For the others, the dream may not die, but the search for a different source of income will continue.
Some of Highway 12 Ventures' entrepreneurial prospects come from TechRanch, headquartered in Bozeman. TechRanch, informally dubbed "the SWAT team for economic development in the high tech and innovation economy" by Sen. Max Baucus, is an incubator that puts Montana entrepreneurs across the table from big money.
"TechRanch is a great hub for Highway 12 it's a streamlined approach," said executive director John O'Donnell, who has worked with Highway 12 for four years packaging potential tech prospects for the Boise-based investors, as well as 40 other investment funds across the country.
Solon admitted that Highway 12 regularly passes on companies that have superb ideas, in favor of the very few who are a perfect fit. "But if we believe in the people and the project, we try to direct them toward groups that are better suited to what it is they're endeavoring."
Such was the case with Printing for Less. The Livingston success story was once small potatoes in a small town, but now boasts more than 200 employees and 3,000 customers, and posts numbers upwards of $30 million annually. "It was timing," said Solon, "and it was a shame to have to pass it's a great business."
Letting the reins slip through their fingers doesn't always end in remorse for the five partners. "We initially passed on Salt Lake City-based Attensity in 2001," said Solon. "We were impressed with them, but it wasn't an investment we wanted to make at that juncture."
Over the course of five years, the firm forged a relationship that included ongoing support, mentoring and contacts.
"Sure enough, a full two years later, we invested in Attensity," Solon said. "It's been one of our strongest choices."
Of the Intermountain region, Solon admitted that Montana is bringing up the rear compared to other five states.
"Montana is at least five to 10 years behind Idaho. Idaho is about five years behind Salt Lake City, Utah, and Salt Lake is about 10 years behind the Denver and Boulder areas of Colorado," Solon said.
But Solon and Highway 12 Ventures are optimistic at the burgeoning talent they are seeing coming out of Montana. "Montana and Idaho are nascent," he said. "We expect that this year will be the year we bring a Montana company on board and nurture them to market."
"The other promising thing is that the Montana Board of Investments came into the second fund with a substantial investment," Solon said.
MBOI manages Montana's many pension funds by making investments regionally, nationally and globally. They recently made the decision to pony up $10 million in the interest of both fiduciary gain and homegrown advantage.
"There was an alignment of Highway 12's interests in an attractive return and our interest to see capital come into the state to benefit local entrepreneurs," said Clifford A. Sheets, chief investment officer for MBOI. "While we don't require that they make specific investments in the state, we do ask them to shake the tree in Montana," he said.
Montana's interest in her own is vested, but Silicon Valley is also beginning to take notice of the state's tech scene. Solon thinks it might be awhile before widespread investments take hold though, because people in that region are incredibly tech-savvy and looking for the same.
"Even a 10th-grader in Silicon Valley knows how to put a business plan together and understands what a liquidation preference is on a venture capital term sheet." They're light years ahead, he said, so competing is tough.
Then there is the issue of supply and demand of good opportunities and the number of deals actually made in this region.
"Silicon Valley has much more capital than it has abundance of ideas," he said, "and it's the relative
opposite here."
But funding is relative. Whether funding is sourced from a venture capital firm or from an angel investor, squiring a tech development idea or product to fruition requires 10 to 20 times the funding of a regular business startup.
"When you talk success with a regular business, 20 percent growth rate is amazing," said Solon. "But for a tech business to be successful, they need to have returns of 200 to 300 percent per year, because things change so quickly in technology," said Solon. The speed of innovation, he said, is what makes succeeding in this market tough.
Venture capital isn't economic development. Venture firms aren't funding the traditional mom and pop business; they fund high-growth, huge-potential tech companies. They focus on high tech because they are a limited partnership bound by a set amount of time in which to recoup capital and get out of the business.
"We have to make the investment, nurture it and exit at the point of an IPO in five years that's a tall order," admitted Solon.
"Venture capital creates pressure to perform quickly. But the upside of venture capital, Solon said, is the benefit of networking, the ability of a firm to cast a wide net for recruiting top-level management teams.
"Don't forget," said Solon, "We also have the road map to success in our pockets already so there's that."
Solon said Highway 12 expects to give the next nod to an IT startup in Montana within three to four months.
"There's an awfully great software story emerging in Montana as we speak just phenomenal."