CreekPath takes the reins in VC search.

• Author: Taylor, Mike
• Position: Money Matters

WHEN DENNIS GRANT SET OUT TO SECURE A SECOND ROUND of funding for Longmont-based CreekPath Systems, he was as demanding of venture capitalists as they've been known to be with startup companies.

Listening to the confident Grant, it's hard to tell who was holding the money and who was asking for it.

"I made them sell themselves," said Grant, the CEO of CreekPath Systems, a developer of storage management software founded in 1999.

"It's all a mindset of who's buying and who's selling. I think there's a tremendous feeling in the marketplace that if you're raising money you're selling yourself, and the VCs can choose to buy or not. I made it clear when I went out--in a nice way--that we were also going to have a selection process.

And what a process it was.

Starting with a list of 35 VCs, the CreekPath team whittled the list down to five based on the firms' histories of second-round financing, their brand names, the terms and conditions they offered, and other factors. CreekPath then asked each VC firm for references from five companies on which the VCs had served as board members--including at least two companies that they'd had significant problems with.

Grant's approach might seem bold considering the tight-fisted venture capital climate and the number of young companies groping for financing and finding none. Venture capital investments in Colorado decreased 42 percent in the fourth quarter compared with the same quarter a year earlier, and were down 61 percent in 2002 from the previous year.

"A lot of the venture capitalists are quite happy not investing unless it's an absolute certainty in their mind," Grant said.

But Grant, who came to the U.S. from Scotland 11 years ago, made believers out of the listeners. In November, CreekPath closed on $16.8 million in second-round financing from four VC firms, making it one of the big winners among Colorado firms seeking venture capital. The financing was led by investment firm New Enterprise Associates, with participation by A.G. Edwards Capital and original investors TeleSoft and Boulder-based Sequel Partners.

"The software that they've written for storage management has a functionality that people really need," said Mark Perry, a general partner at New Enterprise Associates. "There's no one else that offers it, and they have an experienced team...