Colorado's big venture capital adventure.

• Author: Lewis, Pete
• Position: Cover Story

The state will be hard-pressed to keep up with VC inflows here. Good thing we've got those layoffs.

In 1994, Graham McFarland was a high-tech entrepreneur stuck in a staff accountant's body.

McFarland was founder and operator of the computer consulting division of the Denver accounting firm of Lehman Butterwick & Co. That's where he found his calling.

By 1995, he and two partners, also from Lehman, had rustled up $750,000 and launched Express Digital Graphics Inc. in Englewood. The Internet service for photographers prospered, but needed to build sales and marketing. McFarland solicited funds from venture capitalists, and last November drew $1.2 million.

"We gave up about 20 percent of the company for that amount," he noted. And despite 1999 projected sales of $5.6 million, Express expects to raise another $4 million to $6 million this month for Internet development, and sales and marketing. Does anyone doubt Express will get it? Year after year, Colorado's entrepreneurs pull in record-breaking amounts of venture capital. Last year, venture capitalists invested more than $518 million in Colorado companies, a 50 percent increase over 1997, itself a record breaker. Despite a 1Q99 breather, with venture investment falling to $85 million from $92 million a year ago, analysts predicted another record-breaker in '99.

On the supply side, Colorado seems to yield a near-endless stream of skilled, eager entrepreneurs, thanks in part to what we usually think of as bad economic news - mergers, layoffs, downsizing and right-sizing. Our burgeoning inventory' of entrepreneurs also comes from workers' creative responses to on-the-job boredom and Colorado's seduction of out-of-state wannabes.

"With companies like Sun, Lockheed Martin, TCI and Qwest, it's inevitable that bright young people, and bright old people for that matter, will leave those companies with good ideas and start companies that either supply or compete with those larger firms," said Dan Love, managing partner with Ernst & Young LLC in Denver.

What about fallout from layoffs?

Hewlett-Packard's breakup, for instance, inevitably will put some talented people out of work, many of whom will start companies or go to work for companies backed by venture capital funds, said Clark Walker, an associate with Altira Group LLC in Denver.

"That's something with a lot of history here," said John Metzger, president of Metzger Associates in Boulder and president of the Denver-based Rockies Venture Club...