To software giants, Denver’s still a cow town

Perception that area lacks talent, big-league entrepreneurs stifles
growth, CEO says

If Lorine Sweeney didn’t love Colorado, her software company might still be in
Albuquerque, where it began.

By Janet Forgrieve, Rocky Mountain News Staff Writer

More likely, Quovadx Inc. would have moved to California — say, Santa Clara or San
Jose — in its efforts to get big fast.

Instead, Quovadx — which grew its revenue fivefold last year, expects to book $100
million in sales this year and broke even last quarter — calls the Denver Tech Center
home.

The company makes software that helps businesses, mostly health care enterprises,
integrate their systems so that information is more easily accessed and managed.

Quovadx (the company says its means "to go where you’re going with speed and
purpose") aims to do just that, making it an exception among Colorado software
companies, Sweeney said.

The area has never been short of startups content to grow relatively slowly, and it
also boasts examples of software startups that grow to a certain size and get
acquired by out-of-state companies, she said.

What Colorado lacks is a history of fast-growing "Tier 1" software companies, said
Sweeney, president and CEO of Quovadx. The state’s image as lagging behind both
coasts in terms of experienced software entrepreneurs and tech workhorses hurts
when it comes to attracting outside venture capital investment, she said.

Sweeney and others in the software industry offer a few reasons, chief among them
the lack of large software companies here that could spawn spinoffs and set
examples.

Moving company to Colorado

The Quovadx story begins in 1997 in Albuquerque.

That year, a group of venture capital investors was scrambling to save Mpower
Solutions Inc., a once-promising health care software company on the downward slide
after losing key customers.

A nationwide search for a new chief executive led investors to Sweeney, who
agreed to take the position provided she could move the company to Colorado, the
Arizona native’s adopted home.

At 39, Sweeney’s resume included a stint at Microsoft, five years at Great West Life
and a history in the oil and gas industry, even briefly running a small oil and gas
software company. That expertise, along with her energy and intelligence, sold the
investors on Sweeney, said Chairman of the Board Jeffrey Krauss.

Moving the business wasn’t a big issue — certainly not big enough to outweigh such a
strong candidate, said Krauss, then a partner at New York venture capital investment
firm Nazem & Co.

Whether the company could recruit talented employees wasn’t yet a prime concern, he
said, because when Nazem invested, the company wasn’t a startup anymore.

But it quickly became apparent that to save the enterprise, Sweeney needed to
assemble a new team, devise a strategy for the future and start over. The 8-year-old
company became an infant again.

Two years later, when the venture needed to find new investors and raise $17 million,
Colorado’s lack of experienced managers and engineers — or at least that perception —
became an obstacle.

"We had meetings with more than 100 VC firms," Sweeney said. "The concept was
received well, but every single one asked, ‘Would you consider relocating?’ "

Investors believed a company in Colorado wouldn’t be able to attract enough top talent
to be able to grow quickly, she said.

Instead of moving headquarters, Sweeney shifted strategies.

"I became a ‘virtual’ Californian," she said.

Sweeney spread out the company’s operations, adding a significant research and
development facility in Silicon Valley, which appeased investors. As further incentive
to out-of-state firms, Boulder-based Sequel Venture Partners joined the deal.

The company raised the $17 million, and in February 2000, an initial public offering
brought $104 million. Last year, the company reported $51.4 million in revenue, from
about $10 million the year before. In the first quarter of 2002, the company cut its net
loss to zero.

Quovadx staff in several states

Since going public, Quovadx has spent $115 million in cash and stock to acquire six
companies as a primary part of its fast-growth strategy.

In 1999, the business had 57 employees. Today it boasts 500, about 70 in Colorado.
Quovadx has about 3,000 customers and 13 regional offices, with most of its research
and development in Silicon Valley.

While working for Microsoft in Colorado in 1994, Sweeney helped found the Board of
Directors of the Colorado Software and Internet Association, a statewide trade group
that promotes legislative and other efforts aimed at fostering the industry here.

Former Requisite Technology CFO Kathy Cunningham worked alongside Sweeney and
a handful of others to get the organization and its board off the ground.

In the eight years since, the group has grown to more than 225 members. But none of
the member companies headquartered in Colorado meet Sweeney’s definition of a Tier
1 organization.

A Tier 1 company is a "top tier commercially successful company," she said.

Microsoft and Oracle are national examples. The Silicon Valley boasts more than 100
of them, she said, while Colorado’s only company that comes close is business
software maker J.D. Edwards & Co. Another Denver-based company, design
software firm Quark, has been moving much of its jobs and operations offshore during
the past year.

Tier 1 companies have leading-edge software development and marketing practices,
and tend to be leaders in their category, she said. Colorado needs such companies to
set an example for other companies, Sweeney and Cunningham agree, especially
when it comes to the work ethic needed to get out a new software release.

"Technical people want to work on a product that’s going to change the world — or at
least the marketplace," said Cunningham. "That excites them, and those are the people
we should be recruiting to our high-tech companies."

And that attitude has to start with management, she said.

"Our work experiences are vastly different," Cunningham said. "Here, parking lots
empty at 5 p.m., versus (Silicon Valley) kids willing to work all night and get it done.

"I think it needs to change here. VC firms, especially those out of California, don’t feel
that we have the same work ethic."

Rating Coloradans’ work ethic

That "work ethic" may simply be a perception among out-of-state investors.

"I’ve heard the comment from West Coast investors but, coming from Colorado, I think
people out here have a great work ethic," said Jim Conboy, a partner at Denver-based
VC firm Wolf Ventures.

"When we’ve heard that, it hasn’t come from any direct experience — it’s just what
they’ve heard. The companies that we’ve invested in have got really hard-working
teams."

Pat Maley is a CSIA board member and the new CEO of the Dante Group. The
Boulder-based systems management software company is the fourth startup he’s
worked for, and he doesn’t see a difference either.

"The last few companies I’ve worked for, the parking lot was full late at night," he said.
"I just joined The Dante Group, and we’re there late and then back again early in the
morning."

CSIA Executive Director Cathy Ewing agrees that the smaller companies she sees are
working around the clock when necessary.

"The difference is, we don’t have 40 of those companies working in one block," she
said.

Maley agreed with another point Sweeney made in a recent talk to CSIA members —
the whole industry in Colorado would benefit if one or two large companies moved a
division of the company to Colorado.

"The more we as an industry and as a state government can do to get more divisions
or headquarters of large software companies to locate here, the better it will be for the
industry," he said.

Fast-growth companies elusive

In the 1960s, IBM Computer Corp.’s Boulder facility brought talented engineers who
came to work and fell in love with Colorado. When the company made plans to move its
data storage development work out of state, many didn’t want to leave.

Thus Storage Technology Corp. was born, followed during the ensuing years by a
long list of storage startups.

"IBM, H-P, Sun — they bring in a new level of professionalism," Cunningham said.

Conboy takes a slightly different view.

"It’s nice to have companies move here," he said. "(But) I would much rather have a
company that organically gets big here than one that moves here. For growing
companies and getting investment dollars, what this area needs are bell ringers, big
companies that come out of nowhere and grow fast."

At least until the tech layoffs began last year, Colorado did well when it added up the
number of tech workers in the state. In 2000, 97 out of every 1,000 private sector
workers were employed in high-tech jobs, according to a survey released last year by
the American Electronics Association. The vast majority, though, worked for
companies with 50 or fewer employees.

Most of the tech workers in the state are well-educated, but lack the experience
needed to build big companies fast, Sweeney said. And smaller companies trying to
get products launched lack the time to train them.

The big companies are the ones that have the time to train and hone the management
skills and work habits of the large numbers of people here who have the raw talent but
not the track records, Sweeney said.

Experienced Silicon Valley entrepreneurs are moving here, Cunningham said, but many
are tired and, while they’re starting consulting practices, they don’t necessarily want to
do another startup themselves.

"There’s a big difference between showing and doing," she said.

Especially during the high-tech boom years, Colorado tech companies had even more
trouble attracting top tech talent and experienced management teams as their Silicon
Valley-based counterparts did.

One of Colorado’s troubles, Sweeney said, is the perception among highly skilled
workers that if they move their families here and the job doesn’t work out, they’re stuck
here without any options.

The CSIA has been working with companies that are recruiting, to make sure they
know about all the companies in the community, and that they convey that to job
candidates, Maley said.

And fast-growth companies like Quovadx can help, if they succeed, he said.

"My guess is, if she’s able to accomplish what she wants to with the company, and I
think she will be able to do that, she’ll be able to set the example," Maley said. "That will
be good for Colorado."

http://www.rockymountainnews.com/drmn/technology/article/0,1299,DRMN_49_1154189,00.html