Not your typical tech startup: FareHarbor quintuples Denver HQ while turning away venture funding

Inside the offices of one of the faster growing tech startups in Denver, there are no nap pods, indoor scooters or free lunches. The refrigerator isn’t stocked with free caffeine. There is no kombucha on tap.

But reservation-tech company FareHarbor offers what may be a more important attraction: The company makes money and is becoming the biggest name in its niche. Another perk comes later this month, when employees move downtown into an office that is five times larger than their  existing space.

In its four years, FareHarbor, which builds tech to help outdoor-activity operators, has watched competitors rise, raise millions from investors, and then crash and burn. FareHarbor has ignored “easily above 25” unsolicited offers from venture and private equity firms, said president Max Valverde. FareHarbor has no interest in them because it’s already making money.

“As part of our interview process, we show a slideshow of who we are and where we came from and why we do things this way. We have (investors) singing north of $100 million term sheets. You have to understand why we push those away,” Valverde said. “Owning our own destiny is very important.”

FareHarbor, founded by brothers Lawrence and Zachary Hester in Hawaii, considers itself more like a traditional boot-strapped, garage startup, like Hewlett-Packard, Microsoft or Apple. The company, which expects to grow 100 percent over last year, is on track for $50 million in revenues.

“We are at the forefront and we’re growing faster than anyone else combined,” Valverde said. “There are the ones that have catered lunches and foosball tables. And then there are the garage companies — the Apples, the Facebooks. In the early days, it was about building a business. It’s about having revenue. It’s not about playing startup.”

At least two of FareHarbor’s former competitors had raised millions of dollars from venture-capital investors. “Former” because Zerve, which added $20 million in funding in 2014, called it quits last year. Zozi raised $30 million in mid-2015, but by April, TechCrunch called the company “troubled” as news broke that Zozi had been acquired and was being phased out.

This isn’t to say that venture capital is or isn’t getting out of control. But companies that accept venture funding in exchange for ownership have performance deadlines.

“In my experience, venture investors bring a number of unique things to the table beyond capital. But equity capital is important. Not every business can take the time to get to survivable scale without third-party equity,” said J.B. Holston, an entrepreneur who professionally mentored startups before becoming the dean of the computer school at University of Denver last year.

While venture investors offer experience and connections, they expect something back. “For early-stage investments, they’re looking for a 10-times return. This provides real discipline,” Holston said. “Not every startup needs all of these things, and some don’t need any. But most need at least some.”

The travel tech industry is full of venture capital deals. Market researcher CB Insights said that 2016 was the industry’s biggest year, with 198 deals worth $2.5 billion. But FareHarbor’s niche is still very fragmented. Old and new companies are rushing to digitize mom-and-pop operations to make it easier for travelers to book canoe, hiking and walking tours online.

Companies getting a boost are the ones — presumably — raising millions to jump-start growth. But regardless of better-funded competitors or familiar consumer brands such as TripAdvisor’s ViaTor, FareHarbor ranked as the most-used technology in a supplier survey by market researcher Phocuswright. Not by a lot, though, said Douglas Quinby, Phocuswright’s senior vice president of research. FareHarbor was at 9 percent, while two others tied for second at 6 percent each.

“From an outsider’s perspective, yeah, what these guys have done is a total bootstrap culture,” he said. “If you go to their sales office in Needham, Mass., this is no great shakes. They have card table and Ikea furniture and, frankly, in a pretty unimpressive building. There’s an old coffee pot. It’s very different from the kind of flashy Silicon Valley startups where the fridge is loaded with $4 smoothies. Hats off to the guys, especially without raising money and having VCs chasing them down all the time.”

Quinby said FareHarbor’s focus on the less sexy “pipes” has helped it grow because outdoor activity operators need reliable online systems. Competitors are fumbling as they try to expand to a consumer service.

Shawn Rodine, owner of Rocky Mountain Paddleboard, tapped FareHarbor last spring to help manage paddleboard, canoe, and kayak rentals and lessons in three locations. After integrating FareHarbor into Paddleboard’s website, Rodine said more website visitors made a reservation.

“I’d say we’ve had a 30 to 35 percent growth in online reservations, which is great for us because we can plan better and know our availability,” Rodine said, although he’s unsure what growth can be directly linked to FareHarbor. “We know what we’re looking at and are less reliant on walkups.”

But FareHarbor could use some improvement, he added. Right now, customers who need to rebook must call, and staffers must manually change it. That’s issue enough for Rodine to consider a new vendor if it doesn’t get fixed.

FareHarbor, which built a reservation system for for companies offering outdoor activities and other things for tourists, is moving its Denver headquarters to 1515 Cleveland Place. The 100-person company expects to double in size within two years.
FareHarbor
FareHarbor, which built a reservation system for for companies offering outdoor activities for tourists, is moving its Denver headquarters to 1515 Cleveland Place. The 100-person company expects to double in size within two years.

FareHarbor plans to double its staff of 100 Denver employees within two years of moving to the 25,000-square-foot space at 1515 Cleveland Place. (Its current, 5,000-square-foot office, in Capitol Hill, has “people on top of people,” said Valverde.) That will include hiring more support staff to work with clients.

Finding a downtown space where premium rents are hitting $50 per square foot may not seem budget-minded. But the real estate brokers who handled the deal called the move unique for a corporate relocation and were able to get some free rent.

“They’re a high-growth company. It’s the type of tenant that every landlord wants for clients,” said Matt Harbert, who works for CBRE. “Most landlords don’t want to take risks, especially when you talk about larger spaces. One thing Denver has is a lot of early stage companies that aren’t making money yet. FareHarbor was different. Even though they’re young, they show a great trajectory for growth.”

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