fFor tech companies and venture capitalists, the pandemic has been a major boon. With software companies making up a large part of Utah’s startup scene, investors said the period marked a significant increase in the valuation of companies in the region. And those who were selling during that time made the most of that advantage.
When the year 2022 arrived, the situation changed. Inflation brought the economy to a halt, and for investors like Ted McAleerCo-Founder and Board Member of Park City Angelsthis meant that company valuations normalized. “There’s too much money in Utah chasing deals here, and that’s why entrepreneurs have been asking for ridiculous valuations,” he says of the past two years. “We’re starting to see the ridiculous ratings drop. This is primarily a consequence of the downturn in global markets.”
The economic stress test marked a key moment in Utah’s tech scene: an opportunity for investors to see how their view of the region would hold up amid what McAleer called a bubble burst — similar to the dot-com bust of the late 1990s. “It just curls up like a layered cake,” he says Gavin Christensenone of the first venture capitalists in the Utah scene to get started kickstart in 2008. “Everyone looks at their investments and thinks, ‘Okay, if everything goes well, what’s the price in two years?'”
Now people are moving more slowly, he says, “because they’re just living with the risk of public companies all day long… Deals are still being closed, but it’s not 2021 anymore.”
Diogo Myrraha partner at Album VC in Provo, has worked in venture capital in the region for about a decade and says he’s watched technology and venture capital explode during that time. He attributes this to a “crappy” growth process for Utah companies, which often have to do more with less money. “A lot of the work was really putting Utah on the map,” says Myrrha. “Now we’ve become sort of a secret weapon, if you will, for companies we’re friends with who see this ecosystem as an ecosystem that they really pay close attention to. [We went] from a marginal market to a thriving, thriving environment where the coastal companies are definitely on the lookout. They not only pay attention, they vote with their dollars.”
McAleer repeated this development. He pointed out that when angel investors first started their work in Utah, it was one of the smallest markets in the country. Now, he says, Park City Angels are being approached and investing in companies in other states because they are more competitive than VCs in those markets. All of this growth stems from the special time, the VCs say, when Novell and WordPerfect exploded.
Novell, the company that developed document authoring software, was founded in Provo in 1980 and its early success helped fuel a culture of innovation in the state. That’s spawned the next generation of entrepreneurs, says McAleer, resulting in 18 unicorn companies since 2014. “We’ve had a lot of unicorns, but I can’t say we necessarily had a PayPal,” he says.
McAleer talks about those PayPal mafia, when 20 former PayPal employees who had cash left after the company went public founded Tesla, YouTube, LinkedIn, Kiva, Yelp and a few others. Utah’s greatest success was Qualtrics.