When should Idaho startups look to ‘adjacent ecosystems’?

By Sharon Fisher | February 8, 2022

Idaho-based startups looking for support don’t have to stick to state boundaries. A number of recent deals have featured Idaho startups getting funding from Utah and Washington.

It makes sense that cities like Boise, Denver, and Salt Lake City have similarities, said Alison Johnson, a partner with Palo Alto, California-based Wilson Sonsini Goodrich & Rosati. “They have a unique profile, but they’re all experiencing significant growth and have a lot of resources,” she said. “They are similar ecosystems of people and companies moving to those markets and expanding their presence.”

‘Adjacent ecosystems’

Johnson demonstrates this kind of “adjacent ecosystem” all by herself. Formerly a corporate associate with Wilson Sonsini, she joined Holland & Hart in Boise in 2010, making partner, and is now rejoining Wilson Sonsini as part of its new Salt Lake City office – but she and a team of about seven people will still be working in Boise.

“There’s a lot of crossover between our two markets,” Johnson said.

In fact, Wilson Sonsini, which is also planning to open an office in Boulder, Colorado may open an office in Boise as well, Johnson said. “It takes firms some time to get internal approvals and market a new office,” she said. “When they opened the Salt Lake office, they reached out and wanted to know if I would be interested. Boise is a secondary opportunity that wasn’t in their original plan. They view it as a bonus, and a market that they definitely see the growth and opportunity in. Whether there’s an official office at some point, I’m not the decisionmaker but I wouldn’t be surprised given the continued growth we have in the market.”

Not surprisingly, much of this trans-border operation is due to COVID-19. “If there’s one thing we learned in COVID, it’s that we can service clients from anywhere,” Johnson said. “It’s about hiring good talent and people who are invested in their communities who can work with clients in adjacent markets and support a growing practice.”

Johnson, an attorney, primarily services startups that don’t have in-house counsel of their own. “I’m an attorney who works predominantly on startups and emerging companies, from initiation to exit, whether that’s going through public or through a merger or acquisition,” she said. While she has about 30 to 40 regular clients at a time, with some additional ones that occasionally resurface, “I probably touch 10 to 15 clients on any given day, advising on financing, venture capital, transactions, employee equity matters – anything that comes up,” she said. “I’m a single-source attorney to help advise on any of their legal needs. If I’m not the right person – I’m not patent or trademark – I’m their main point of contact and I help them navigate to one of my colleagues.”

The Gather deal

One “adjacent ecosystem” deal that Johnson worked on recently was the $4 million in venture funding deal for Gather in 2020. Gather is a Boise-based company that produces a platform for live-streaming from funeral homes.

“I was counsel to Gather,” Johnson explained. “They are a local company that experienced a bump in business and interest given the changes in the COVID environment. I knew (founder) Zach (Chatterton) through the grapevine, and I knew what he was doing.”

Chatterton had received a “term sheet,” which Johnson explained is the initial document that outlines the proposed terms an investor is interested in making. Sometimes companies receive and recruit for multiple term sheets at a time, she said. “VCs keep tabs on companies that are growing, and when they see them pick up market traction or land significant customers, they become more attractive to investors.”

Chatterton had a pre-existing relationship with Salt Lake City-based Pelion Venture Partners, because he’d gone to school with the managing partners, Johnson said. “Ultimately, they decided to make an investment. Zach approached me as legal counsel – ‘Can you walk us through and represent us on the deal.’ You get the term sheet signed, and you set your attorneys loose to drop the documents that reflect what was agreed upon in the term sheet. To my knowledge, it’s been a great investment, and they were really happy to receive Pelion’s financing and relationships and expertise that they can use to help grow the company.”

It’s all about relationships

It’s the relationships that a potential investor can offer that sometimes makes looking out of state attractive, Johnson said. “Not every dollar has the same value,” she said. “If someone just gives a company money but isn’t there as a support system by asking hard questions, facilitating contracts, ad other third-party relationships, money alone is not always the best investment. It’s money plus expertise and personal investment. I’ve seen that in the community with outside investors coming in.”

Plus, bringing outside investors into Idaho can help other startups in the state technology cosystem as well. “Having outside contacts come into community, with their resources and network, have proven to be helpful,” Johnson said. “Some VC firms only invest in a certain type of company. That’s good and bad. If you don’t meet that criteria, it eliminates you. While there’s something to be said about local people invested in their own community and expanding contacts there, if companies are a certain type of company — cybersecurity, health care, software as a service — if they take money from VCs that specialize tin those companies, they bring strategic resources to the company because their profile and network is all in a similar industry space.”

Should you stay or should you go?

While Johnson would rather see companies stay and grow in Idaho, funding can be an issue, she said. “There’s a couple of VC firms here that have established roots,” she said. “StageDotO is the one that’s most present. Epic Ventures, based in Salt Lake, continues to make investments in Boise. But we’re not a community that as yet has a really robust VC community.”

Consequently, some startups move to where they think they can be more on the radar and find funding more easily, Johnson said. “I think it’s easier to network in VC communities where there’s 10 funds competing to invest in your company, and they know this because of the network already built into those communities.”

In comparison, a Boise startup has to work a little harder to get its first term sheet, especially for early-stage seed investment, Johnson said. “Those are harder to land because you’re asking investors to take more of a risk,” she said. “Companies at ideation and don’t yet have revenue or customers are a bigger leap of faith. It’s easier to provide value-add if they can physically walk down to your office and attend your board meeting or set up a coffee meeting with you and a great vendor or partner. It’s a little easier to land funding when you’re in a city that’s specifically known for there being a large VC presence and marketplace.”

That said, it’s easier once a company hits Series A funding, Johnson added. “Once you get through Series A, you tend to be more on the radar of companies outside Boise,” she said.

This article was created as a collaboration between Boise Entrepreneur Week, Built in Idaho and Trailhead