Copyright © 2014 Albuquerque Journal
A bit more early-stage venture capital soon will be available for New Mexico startups thanks to a new State Investment Council commitment of up to $10 million for Epic Ventures’ newest fund.
Utah-headquartered Epic, which operates a local office in New Mexico, is raising its fifth fund with an initial target of $75 million. The SIC approved an investment of up to $10 million, or a maximum of 10 percent of the final value of the fund, at the end of May.
The SIC money comes from the state’s private equity program, through which the council can invest up to 9 percent of the Severance Tax Permanent Fund in venture activity in New Mexico. That includes direct investments in local startup companies through a Co-Investment Fund managed for the SIC by Sun Mountain Capital, plus investments of up to $20 million in independent venture funds managed by firms like Epic.
Under the program, Epic must agree to invest in local companies, or encourage others to invest, at least as much as the SIC’s commitment to the fund, said Brian Birk, managing partner at Sun Mountain, which advises the SIC on independent funds.
‘A proven history’
“Epic has a proven history of investing in companies in New Mexico,” he said. “They put money in nine different startups in the past 10 years, or an average of about one investment per year. We expect that pace to continue.”
Epic, previously called Wasatch Venture Fund, received three previous SIC investments for a total of $30.7 million, said SIC spokesman Charlie Wollmann.
“They have a good track record of being very active in New Mexico,” he said. “They’re a quality investor that maintains a constant presence on the ground here.”
Epic focuses on early stage funding for companies that need more product and market development before attracting larger rounds of capital from other venture investors. That early stage capital has been scarce in New Mexico in recent years.
“By investing in Epic’s new fund, we’re filling a gap,” Wollmann said.
Epic specializes in information technology. Some of its commitments in New Mexico include aviation software developer Aspen Avionics, medical diagnostics company Exagen Diagnostics and Lavu Inc., which sells point-of-sale software for restaurants to conduct business on tablets and mobile devices.
Epic was also an early investor in the biometric identification firm Lumidigm Inc., which the Swedish company Assa Abloy bought for more than $60 million in February.
‘Deals in the works’
Epic is now considering a list of companies for new investments, said Katie Rice, Epic’s investment professional in New Mexico.
“We have a pipeline of deals in the works,” she said. “There’s a lot of good technology here in the software sector.”
The SIC investment reflects renewed state commitment to local venture activity. The council had frozen all venture investing after the recession in 2008, because the value of the severance tax fund declined significantly when the economy tanked, limiting the amount of money available for the private equity program.
Even after the economy rebounded and the permanent fund regained its value, SIC members hesitated to pursue new venture investments until they saw more returns from previous commitments.
In late 2012, however, the council re-initiated activity, agreeing to pump an average of about $40 million a year into the program. In fact, in February the SIC approved $10 million for Sierra Ventures of California – its first new commitment to an independent fund since 2008.
That deal, however, fell through because, after the council’s approval, SIC staff could not agree on legal terms with Sierra managers to close on the investment.
“There were multiple issues on which we could not come to terms regarding New Mexico program requirements and penalties for failing to meet those obligations,” Wollmann said.
First since 2008
That would make the Epic deal the first SIC investment in an independent fund since 2008, assuming no issues arise before closing.
The SIC has $258.2 million in net deployed capital in venture funds out of $401.4 million potentially available from the severance tax fund, according to Sun Mountain’s latest report in May. The program has achieved a 4.4 percent rate of return on investments since 2004, with about $107 million in cash returned to the permanent fund since then.
The council voted 8-1 to approve the investment in Epic, with only SIC member Scott Smart in opposition. Gov. Susana Martinez and Land Commissioner Ray Powell were absent.