Stronger than the pandemic: Few, if any, NM startups failed in latest downturn - Albuquerque Journal

Stronger than the pandemic: Few, if any, NM startups failed in latest downturn

The Lobo Rainforest building was largely empty during the pandemic, but Rainforest Innovations maintained programming online. (Jim Thompson/Albuquerque Journal)

Long-time angel investor and serial entrepreneur John Chavez had an unenviable front-row seat during the economic devastation wrought by the Great Recession in 2008.

John Chavez

At that time, New Mexico’s incipient startup ecosystem had limited resources to support many struggling businesses that had recently launched prior to the crisis, and investors like Chavez could do little as numerous startups crashed and burned in the downturn.

Now, 13 years later, it’s a very different story as the state and country emerge from the pandemic, which plunged the economy into a far-worse crisis than the one a decade ago. This time, the local ecosystem was well-prepared to weather the storm, armed with an extensive statewide network of support programs, plus capital in place to help companies hunker down and adapt.

As a result, Chavez and other investors now say they know of no New Mexico startups that failed during the pandemic. In fact, as co-founder and executive of both the Albuquerque-based Startup Factory and NMA Ventures, Chavez and his colleagues have helped buoy existing companies while even launching some new ones since last year.

“The startup community continues to be very vibrant,” Chavez told the Journal. “I don’t think there’s been any downsizing, but rather a hunger to get back to working with people face-to-face…I can’t think of any startup company that failed during the pandemic.”

The pandemic did have a devastating impact on New Mexico’s economy, and despite the July 1 lifting of all limitations on business activities, the state could struggle for quite awhile to fully emerge from the downturn. In fact, New Mexico ranks dead last among all 50 states in recovering jobs lost in the coronavirus, according to a new report released in June by New Mexico State University’s Arrowhead Center, which runs all of NMSU’s entrepreneurship and technology-transfer programs.

After the pandemic started, New Mexico lost just over 100,000 jobs, or about 11.7% of employment statewide, said Arrowhead Economic Research Director Kramer Winingham. And as of April, only about 32,000 jobs, or 32% of all lost employment, had come back – much less than the 64% average rate of recovery nationwide.

But more than half of the roughly 69,000 jobs that have yet to return are concentrated in just three economic sectors – including leisure and hospitality, local government, and mining and logging – with construction, health, and professional services making up most of the rest, according to the Arrowhead report. And those industries usually don’t encompass many startups per se, a category that generally refers to recently-launched businesses that market new, innovative and often cutting-edge products and services, particularly in the technology arena.

Alicia J. Keyes

“Overall, the startup ecosystem held together quite well,” Winingham told the Journal. “… Startups remain strong, because there’s a lot of support and resources available for them. That reflects a statewide consensus that startups and innovation are key to economic development.”

Indeed, prior to the pandemic, New Mexico’s startup landscape had achieved unprecedented momentum, which helped incipient businesses to endure during the COVID-induced downturn, said Economic Development Secretary Alicia J. Keyes. And that bodes particularly well for local efforts to diversify the economy away from traditional industries like oil and gas as New Mexico works to build back from the pandemic.

“I think New Mexico will come back even stronger and more resilient than before, because this state is all about innovation,” Keyes told the Journal. “Because of the national labs and research universities here, we’ve always been primed to excel at technology transfer and to be an innovation center for science and technology.”

Bustling ecosystem

State agencies, local universities and economic development professionals have worked for more than two decades to build the startup economy here, setting up support programs of all kinds to encourage entrepreneurship and innovation by establishing institutional structures to help build and grow startups. Those efforts gained immense momentum prior to the coronavirus, generating a flourishing system of business accelerators, incubators, co-working spaces and university-based programs to teach business skills and mentor emerging entrepreneurs.

Albuquerque in particular garnered national attention and financial support as public and private entities pulled together in partnership with the University of New Mexico and Central New Mexico Community College to build the Innovate ABQ research and development zone Downtown, with a broader goal of creating an “innovation corridor” along Central Ave.

In southern New Mexico, NMSU took the lead in building a thriving support network for entrepreneurship and startup development through its Arrowhead Center, which has since expanded its services to local communities across the state.

In addition, the State Investment Council pumped hundreds of millions of dollars from the Severance Tax Permanent Fund into venture investment funds that, in turn, channeled seed and early-stage capital to dozens of startups across the state. That includes launch of the “catalyst fund,” or “fund of funds,” in 2016 to build a $40 million investment pool of public and private capital for a half dozen micro funds to inject money into local startups.

By early 2020, New Mexico’s startup ecosystem was bustling with activity as hundreds of budding businesses formed to market new products and services, backed by an array of support programs working and collaborating together to offer the mentoring and support needed to help startups launch and grow.

But when the pandemic hit, it all came to a sharp halt as the entire economy went into lockdown. All the events, workshops and activities that by then were attracting hundreds of participants everyday at Innovate ABQ and at accelerators and incubators in Albuquerque and elsewhere went quiet as people holed up at home and struggled to find new ways to work and operate.

Startups adapt

Brian Birk

Nevertheless, the seeming collapse in startup activity was short-lived as everyone across the board raced to regroup online, and by last summer, the ecosystem had

achieved a lot of its pre-pandemic vibrancy through virtual networks, said Brian Birk, managing director of Santa Fe-based Sun Mountain Capital, which manages the catalyst fund and the SIC’s Co-Investment Fund for direct investments in New Mexico startup companies.

“There was a sharp pullback from March through May last year as everyone took pause to assess what the pandemic’s impact would be,” Birk told the Journal. “But surprisingly, by June and July, we saw real resilience set in as people got back to doing business with Zoom and other online tools at a much faster pace than anyone anticipated.”

Many companies did suffer, especially startups with new technologies still under development, such as bioengineering firms working on novel medical devices or pharmaceutics.

“Lab workers struggled to continue experiments because they couldn’t get into their labs and they couldn’t recruit participants for clinical trials,” Birk said. “Technology development companies with international partners in places like Europe and Asia were also impacted because the pandemic interrupted supply chains and collaborative work.”

David Blivin

Software development firms and companies marketing new online goods and services did well and even prospered in the pandemic. But technology startups building new hardware suffered a lot, said David Blivin, managing partner of SIC-backed Cottonwood Technology Funds.

“There are many hard-tech companies in New Mexico that need access to their labs and engineering facilities to develop prototypes and test things in person, and all of that came to a halt,” Blivin said. “It affected many of the companies in our portfolio.”

But even those companies managed to pull through, thanks in good part to the supportive ecosystem already in place before the pandemic hit.

For one thing, many companies that received venture investment prior to the coronavirus could turn to their existing backers if needed for follow-on funding, mentoring and other support to navigate the crisis.

“Companies worked to implement cost controls, reduce their spending and hunker down to weather the storm,” Birk said. “Fund managers worked with company executives on proactive steps to manage potential damage.”

Anne Haines

A lot of money also became available through federal stimulus spending, plus state programs to assist struggling businesses. The federal Paycheck Protection Program in particular helped companies across the state to stay afloat, including thousands of small businesses and startups, said Anne Haines, president and CEO of micro-lending firm DreamSpring, which managed some of the PPP funding in New Mexico.

Just in the first six months of 2021, DreamSpring managed 25,000 PPP applications benefitting more than 17,000 small businesses for a total of $218 million in funding, Haines said. That compares to just 1,800 loans DreamSpring made to entrepreneurs in all of 2019.

“The magnitude of impact through DreamSpring lending for small, underserved businesses was enormous in comparison to the general lending going on before the pandemic,” Haines told the Journal. “…As a result, many businesses that otherwise wouldn’t have made it through the pandemic managed to stay in business.”

DreamSpring generally focuses on more traditional, Main Street-type operations rather than startups per se. That includes everything from food and beverage firms, landscaping companies, and construction and welding services to home-improvement and consulting businesses.

But many startups benefitted as well from PPP funding.

“Between PPP loans and efforts to reel in spending, most companies managed to survive,” Blivin said. “I wouldn’t say they emerged unscathed from the pandemic, but most remained intact with money to last awhile, and now they’re starting to get back on track.”

Some were even able to raise more private equity from local and out-of-state investors. And state financing – such as Local Economic Development Act funding to help businesses expand operations, plus Job Training Incentive Program awards to hire new employees – allowed some startups to significantly grow their footprint during the pandemic.

“We’re seeing more engagement with companies than ever before,” said EDD Secretary Keyes. “Many are taking advantage of state incentives. We’ve never been this busy through our LEDA and JTIP programs.”

Vibrant support system

Startups also benefitted from New Mexico’s robust support programs, which remained intact through virtual networking throughout the pandemic. In fact, most program managers say the move to online operations has significantly fortified their outreach and impact.

Lisa Kuuttila

Rainforest Innovations, for example – which manages all of UNM’s entrepreneurship and technology-transfer programs at the Lobo Rainforest Building at Innovate ABQ Downtown – transitioned nearly all activities to an online format in the first weeks of the pandemic. That involved a significant learning curve at first, but as Rainforest personnel adapted, program attendance grew exponentially, said Rainforest Innovations President and CEO Lisa Kuuttila.

“The Lobo Rainforest Building was empty during the pandemic, but our online programming was really, if anything, bigger than our previous in-person activities,” Kuuttila told the Journal. “We’ve kept everything going via Zoom.”

Rob DelCampo

That includes UNM’s Innovation Academy, which builds student entrepreneurship by teaching business knowledge, critical thinking and problem-solving skills through direct, real-world experience that often includes launching new startups individually and in teams. About 1,000 students remained enrolled in courses as of spring 2021, about the same as before the pandemic, said Academy Director Rob DelCampo.

“Our signature programs have all continued and participation remains consistent,” DelCampo told the Journal.

Indeed, students launched about two-dozen new startups during the pandemic, for a total of 94 firms created since the academy opened in 2016, DelCampo said. Half of the new ventures were specifically inspired by COVID, such as one to build inexpensive ventilators with off-the-shelf parts, and another to create mask dispensers for people to grab face coverings like paper towels.

UNM will reopen its campus again to all in-person activities on Aug. 2. But even as university programs return to normal, Rainforest Innovations will continue its online programming in a hybrid format alongside live events given the advantages it offers for broad participation.

“All our seminars are now online and archived so people can watch them at their leisure,” Kuuttila said. “That’s a trend that’s likely to continue post-pandemic because it’s so convenient. People can get a lot of training online now that they couldn’t before.”

T.J. Cook

Likewise, the ABQid business accelerator run by CNM Ingenuity, which manages all of CNM’s commercial endeavors, built an online innovation network during the pandemic that unites people and programs across the state to rapidly connect startups and entrepreneurs with needed resources, said ABQid Executive Director T.J. Cook.

“The pivot to online programming and events has made the startup ecosystem more level and unified across the state,” Cook told the Journal. “New Mexico is huge, and it’s hard to reach people everywhere. But the scourge of the pandemic actually helped the community come together more, and we want that to continue.”

About 150 people participate now in the network, and the goal is to reach 250 by year-end, Cook said.

Drew Tulchin

ABQid now also offers its weekly “office hours” to mentor and counsel entrepreneurs through an online format, which will continue post-pandemic. And it joined with the New Mexico Angels last fall to launch a new quarterly online “Investor Roundtable” that unites entrepreneurs with Angel investors to share information and ideas about emerging startups and form lasting connections.

“A lot of our private investors have learned to work virtually with entrepreneurs in ways they hadn’t before,” NM Angels President Drew Tulchin told the Journal. “… Entrepreneurship in general has proved to be very strong in New Mexico from before, during and after the pandemic. It’s a great time for startups in New Mexico and for investors.”

New opportunities

Returning to in-person programs and networking is critical for everybody, Cook said.

“Nothing has changed in the way that humans build trust, which requires face-to-face relations,” he said. “Partnerships can start online, but if an investor is going to put $50,000 into a new company, he’s not going to do it sight unseen. Our brains are not wired to build that level of trust in a Zoom environment.”

But the pandemic has created new ways of relating and connecting that will continue as the economy reopens. And the innovation and creativity that startup entrepreneurs and their supporters applied to survive the crisis has better prepared them to discover fresh opportunities that budding businesses can focus on, said Haines of DreamSpring.

“I have tremendous optimism about small businesses and startups going forward,” Haines said. “There’s such pent-up demand now for goods and services, and that creates enormous opportunities for small businesses to tap into.”

With New Mexico’s startup ecosystem emerging from the pandemic even stronger than before, the state could see its startup community grow to new heights going forward, said Secretary Keyes.

“I believe we have an opportunity now that we’ve never had before to move everything to the next level,” Keyes said.

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