Editor’s note: This is the second in a series about the Colorado Springs entrepreneurial environment.
The leaders and board of the Colorado Springs Technology Incubator were under a great deal of pressure earlier this year when they convened to determine the future of the 14-year-old nonprofit.
Ultimately, coaxed by financial pressures, they chose to do away with CSTI — scrapping its board, selling its building and entering a “rebranding process” that would lead to the creation of a new nonprofit with a new mission.
The newly embodied nonprofit was formed within weeks of CSTI’s disbanding — and the sale of its building — and was dubbed Rocky Mountain Innovation Partners, which took what it needed from its predecessor, left the rest behind and created confusion in the local business community.
“I’m not completely clear on how or why that transition happened,” said Lisa Tessarowicz, founder and owner of Epicentral Coworking in downtown Colorado Springs.
As CSTI transitions to RMIP, it leaves business people questioning its new role, its financial structure and the amount of community involvment it will allow.
A new beginning
In April, on the eve of CSTI’s collapse, CEO Ric Denton and Operations Director Mary Fox oversaw a swift sale of the 22,000-square-foot building at 3595 E. Fountain Blvd. it had purchased in 2007 for $2.65 million using a $450,000 matching grant issued through the Colorado Economic Development Administration.
The sale to BF Legacy LLC closed April 24 at $650,000 — $2 million below its 2007 purchase price, according to El Paso County records — and RMIP launched within a week. It now occupies two offices on the Catalyst Campus, an enterprise started by Colorado Springs business owner Kevin O’Neil.
April 29 marked the official birth of the new organization, which was portrayed as the next step in a rebranding process commissioned by the now-defunct CSTI board of directors that included several prominent community leaders and educators.
“Equipped with an expanded vision to encourage and support entrepreneurship in Colorado, [the CSTI] board recently unanimously agreed to support a more robust mission — to introduce the Rocky Mountain Innovation Partners as a completely new nonprofit organization,” the organization wrote in a statement on launch day.
“RMIP’s mission is to support and educate clients in entrepreneurship, to create new businesses, accelerate company growth, provide commercialization opportunities, transfer innovative technologies, and expand opportunities for early stage investments.”
However, in contrast to CSTI’s former model as a technology incubator with services offered broadly to businesses of all kinds, RMIP has been labeled a business accelerator focusing on support for technology transfer partnerships and cyber sciences, Denton told the Business Journal in April, a move to complement Denton’s past working for defense contractors in California.
The move toward more specialized services was predicated, at least in part, on CSTI’s August 2014 technology transfer agreement with the U.S. Air Force Academy to help the educational military installation market and commercialize the technologies it has developed and patented.
Although the incubator, and now RMIP, have worked with the Academy for nearly a year, the partnership has yet to yield any successful license agreements. No one from the Academy was available to speak about RMIP’s assistance.
The partnership between CSTI and the Academy was one of the few assets RMIP chose to carry over through its rebranding process. In addition to Denton and Fox, RMIP also inherited the incubator’s client metrics.
In 2012, Denton’s first full year as CEO of CSTI, the organization published a list of notable accomplishments as part of its Form 990 nonprofit filing with the Internal Revenue Service. The report stated that CSTI had “helped entrepreneurs secure $2 million of direct investment with subsequent investments of $10 million” to date through High Altitude Investors, an affiliated venture capital firm that Denton became involved with before joining the incubator.
According to that same 2012 report, HAI provided $2 million in capital investments to Grant Dental, a company founded by former incubator CEO and Chairman Duncan Stewart that received personal funding from Denton.
“That was sort of a backdoor situation, in the sense that I had already been working as an investor through High Altitude Investors,” Denton told the Business Journal last week. “Then I heard what Duncan was doing and said, ‘How can I get in on the ground floor with this?’ ”
Although sources say Denton claimed to have refused a salary from the organization, he received $36,667 in 2011 and $53,333 in 2012, according to official documents. Stewart received $31,500 in 2011, the year he stepped down as CEO and became board chairman.
The 2012 report also stated that the organization had served 27 client companies to date and helped to file 16 patents (nine granted).
When the organization reported to the IRS in 2013, the metrics remained unchanged.
Now, Fox said RMIP and CSTI have served 37 client companies, filed 30 patents (14 granted) and “helped secure $2 million of direct investment with subsequent investments of $20 million.”
But Denton said metrics don’t mean much in a challenging business climate, which he blames for CSTI’s failure.
“Forget all the metrics — you can make up metrics all day long — but at the end of the day, I would guarantee that no organization has seen a home-run, slam-dunk success resulting in something like an IPO or major acquisition,” he said.
“We have not had that kind of event, in my opinion, in the entire 10 years I’ve been here.”
As part of its rebranding marketing campaign, RMIP salvaged a few client testimonials from companies and partners that had worked with CSTI in the past.
There are currently three of the testimonials on RMIP’s website: Alan Davis, a now-retired UCCS business professor whose quote was recycled from CSTI’s 2012 report to the IRS, was unavailable for comment; Rob Vincent, the founder and CEO of the now-defunct company ABA Revolution, could not be reached; and Eric Skinner, owner of successful Springs-based company Spectware, declined to comment.
Reasons for decline
The common understanding in the business community is that CSTI’s demise can be partially attributed to a flawed and outdated business model that made funding an uphill battle in a time when it was difficult for entrepreneurs to afford its consulting services.
“I think they were really trying to make it successful, but it was a tough model to sustain,” said UCCS College of Business Dean Venkat Reddy, who served on CSTI’s advisory board for more than five years before leaving in 2012.
“To make that model work, you need to have a good financial base … and I think that constrained them from doing what they wanted to do. They were bringing in startups without money. If the company was successful, they’d leave faster; if they weren’t successful, they wouldn’t have anything to invest back into the program.”
Profit margins shrank from $81,000 in 2009 to just $3,400 in 2013 (the last year financials are publicly available), according to expense reports attached to CSTI’s Form 990 filings with the IRS. While government grants grew and floated above $100,000 from 2011 to 2013, contributions declined from $85,845 in 2009 to $36,738 in 2013, when total revenue reached a five-year low of $227,000.
The city of Colorado Springs also allocated $50,000 for CSTI each year from 2008 to 2012, according to city budget documents. In 2013, that amount dropped to $25,000, and then dropped again to $10,000 in 2014.
“The funding for the then-incubator has always been challenging,” Denton said. “After the crash, everything reversed on us. [The building] went from being completely filled or close to it — at very nice commercial rates — to struggling along with about half occupancy. … In short, we went from surplus status to deficit status.”
Reddy, who said he exited the board to accommodate his growing responsibilities and workload at UCCS, said that there were multiple university representatives on the board during the time he served.
Few local representatives
Between 2009 and 2015, the board of directors was heavily populated with representatives from local colleges and universities, as well as organizations such as Colorado Springs Utilities, all of which maintained partnerships or funding relationships with the incubator. That’s not the case now.
Steve Berry, a spokesperson for Colorado Springs Utilities, said the organization “fully supported the transition,” which it saw as having a “greater impact on entrepreneurial growth and technology transfer for our community.”
Utilities supported RMIP in obtaining $250,000 in grant funding earlier this year from the Colorado Office of Economic Development and International Trade.
Berry said he does not know whether plans are in the works to give Utilities a seat on RMIP’s board.
Pikes Peak Community College also, at one point, filled a seat on the board of CSTI but has not yet established an official partnership with RMIP, according to spokesperson Allison Cortez.
“We don’t have a formal relationship with [RMIP] now,” Cortez said. “Ric Denton is on an advisory board for us, but he does that as a citizen — not representing [RMIP].”
The same goes for UCCS, according to spokesman Tom Hutton.
“To my knowledge, no one from the university has been involved in RMIP,” he said.
RMIP currently maintains a three-member board of directors composed of local businessmen Bill Miller, Walter Copan and Denton, according to the organization’s website.
Despite the smaller board and compact office space, Denton remains upbeat about RMIP’s future.
“I think the Catalyst Campus will be the center for innovation, in many ways, for years to come,” he said. “It’s still ramping up, but it’s an exciting place to be.”
For the first and third parts in the series, click here: