Next Frontier Capital 2020 Update The Future: Hopeful and exciting, despite uncertainty

Les Craig

Next Frontier Capital 2020 Update The Future: Hopeful and exciting, despite uncertainty

On October 30th, NFC held its 2020 Annual Meeting. Especially in such a globally tumultuous year, we are incredibly grateful to all of our LPs for their continued support. Their unwavering confidence in our firm’s mission and the early stage entrepreneurs of the Intermountain West have allowed us to continue supporting great companies and contributing to the positive impact that a rapidly growing startup ecosystem has on our local communities.

While we always look forward to welcoming our LPs to Bozeman for a weekend to update them on our strategy, investment activity, portfolio performance, and outlook - this year’s meeting took place virtually. Despite not being able to be together in-person, we were thankful to have senior leaders from NFC portfolio companies Aumni, Submittable, Bonusly, EveryoneSocial, and VDS present.

Preparing for this meeting always prompts significant reflection within our firm about the previous year’s investments, regional trends, and the development of our local ecosystems. For NFC, there has been significant growth, both in our portfolio and our team, since our last Annual Meeting in June of 2019. Beyond our firm, we have seen the Intermountain West (IMW) ecosystem as a whole continue to grow faster than even NFC Founders Will Price and Richard Harjes believed possible when they began this journey five years ago.

While the past year has undoubtedly been one of the most challenging and uncertain in recent history, we are constantly uplifted and inspired by the dedication, talent, and determination we see from our portfolio company leaders, up-and-coming start-up founders, LPs, co-investors, and community partners.

In this update, we write to share some high level thoughts about the trends and development we are witnessing in Montana and the IMW, as well as updates on NFC’s growth over the last 16 months.

NFC: Fund III and a growing team

This year, we are humbled to say that we are well on our way to closing the raise of our third fund. This represents a significant milestone in the growth of our firm and in our ability to increase our support for promising early stage companies across Montana, Colorado, Utah, Idaho, and Wyoming.

Early 2020 marked the final investments made out of NFC Fund II, bringing us to a total of 16 companies in our second fund. Our final three Fund II investments included Getro (CO), Chargeback (UT), and Special Project (MT).

Q2 of 2020 also marked the beginning of our Fund III portfolio. While some regional firms refrained from investing as a result of the uncertain economic environment this year, we were fortunate to source talented founders - building counter-cyclical products - in need of capital. Our Fund III investments in 2020 included Advisr (MT), Bonusly (CO), Claravine (UT), EveryoneSocial (UT), and Demoflow (CO), as well as two exciting Montana investments that we are looking forward to publicly announcing very soon!

Beyond our portfolio, the NFC team has also grown significantly this year. In April, we had the privilege of welcoming former Director of Techstars Boulder, Julie Penner, to the firm as our newest Venture Partner. Julie has over 15 years of experience working with early stage companies, both from an operational and investment perspective. We are excited to have her as a part of the team and are looking forward to what her boots-on-the-ground presence in Boulder will allow us to do as we further expand our portfolio and partnerships in Colorado. You can read more about Julie in her introductory blog post here.

Montana: Continued growth and university-based innovation

Montana continues to be at the heart of our investment thesis, and we remain committed to being the go-to early stage investors in our home state.

Over the past five years, we have invested in 20 Montana companies, which includes over $28M of our own capital, and have brought in an additional $174M into the state from co-investors. The amount of VC investment coming into the state continues to accelerate at a rate that was unimaginable a few years ago, and we are extremely proud to play a part driving the 14.5x annualized increase in Montana VC investment.

This year also saw NFC’s first investment through the Montana State University CATalyst Gap Funding program. The CATalyst program was launched in 2019 by NFC, the MSU Tech Transfer Office, and the MSU Office of Research to invest in and support the commercialization of cutting edge university research at critical early stages. The program is the first i6 RIS program in the state, and we believe it represents an exciting step in Montana’s entrepreneurial ecosystem development.

MSU has been a hub of technology innovation for decades, and by putting in place a mechanism to support the transition of these innovations into marketable products, we hope to help strengthen the university’s role as a pipeline for successful technology commercialization.

IMW: Mass-migration and shifts in deal pricing

Over the past few months, we’ve seen COVID-19 accelerate the already prominent trend of entrepreneurs, investors, and other talented individuals moving from major coastal cities to the Intermountain West. As the nation has shifted towards a more flexible approach to work, necessitated by the events of the past nine months, it has become apparent for many people that great companies and teams can be built and run in many places outside of San Francisco and New York. That has led to a rapid migration to areas with lower costs of living and higher quality of life, with Boulder, Salt Lake City, Bozeman, and Boise being prime examples.

While this may have started for some as an escape from being locked down in cramped urban apartments, early signs suggest that many of those that have relocated are not planning to leave anytime soon. This mentality is in-line with the decisions and new philosophies being adopted by tech leaders like Twitter, Microsoft, and Google, which plan to accommodate employees working from home “forever” and adjust salaries based on local costs of living.

We have also seen changes in deal pricing as a result of COVID-19. Following the economic crash in March, deal price expectations also dropped significantly. The regional deals we saw post-Q1 this year have had lower revenue multipliers that were adjusted for higher economic uncertainty. For NFC, this presented an opportunity to invest in more mature companies at similar prices to what we invested in prior. However, the venture market as a whole has shown no signs of the catastrophic slowdown predicted at the pandemic’s start. In fact, VC investment dollars, deal pacing, and fundraising are on par with, or have already exceeded, industry numbers from 2019.

Beyond a hopeful outlook for the industry as a whole, we feel confident that our growing relationships with some of the top VCs and strategic investors both regionally and nationally position us to continue capitalizing on our opportunity to find and support the hottest early stage companies in the IMW. Because of our increasing role as a trusted co-investor in Colorado and Utah, we have been able to invest in companies like Halp (2019) which was acquired this year by Atlassian (NASDAQ: TEAM), as well as some of this year’s most promising Colorado startups like Getro and Demoflow.

Working closely with strong regional names like Foundry Group, Kickstart Seed Fund, Access Venture Partners, and over 50 other VC and strategic investors across the country, we are looking forward to the path ahead.

We believe 2021 will see the IMW continue to prove itself as a rising star in tech and a more affordable and appealing alternative to major coastal cities.

We will continue to support the ecosystem's development and invest in the incredible founders who call the IMW home.

The Future: Hopeful and exciting, despite uncertainty

Overall, despite the challenges and uncertainty that have become a part of daily life, we feel extremely hopeful about the coming year. The unwavering determination of our portfolio company leaders, the drive of the new entrepreneurs we meet everyday, and the support and guidance of our investors give us confidence that the Montana and IMW ecosystems are going to adapt to whatever new circumstances may arise and continue to grow and thrive. As we continue to build the entrepreneurial community in Montana and deepen our relationships and presence in Colorado, Utah, Wyoming, and Idaho, we are excited about the chance to keep supporting talented founders with innovative ideas.

We are grateful for all of you who are following our journey and the support of our incredible network of entrepreneurs, investors, partners, mentors, friends, and family. We would not be where we are today without you, and we are looking forward to many more years of growth and innovation in the region we love.  

Wishing you a healthy and happy Thanksgiving,

The NFC Team

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