A newfound surge in entrepreneurialism and startup activity is evident in New Mexico, but beyond money from friends and family, many emerging businesses need to seek outside funding for liftoff.
Aspiring entrepreneurs can learn some of the basics of finding that early-stage capital from professional investors during a panel discussion Oct. 16 at the Albuquerque International Balloon Museum. The event, organized by the Coronado Ventures Forum, aims to educate business people about what investors look for in a typical funding deal and how best to attract their interest, said Katie Szczepaniak Rice, forum president and head of the Epic Ventures office in New Mexico. The forum costs $22.50 in advance, or $25 at the door.
“We’ll discuss the role of venture capitalists, angel investors, business accelerator programs and other sources of capital for startups seeking funding in New Mexico,” Rice said. “It will be informative and educational for entrepreneurs. We’ll have local venture and Angel investors on the panel, as well as an out-of-state venture professional.”
Availability of venture capital has become more limited in New Mexico since the recession, which led to a sharp contraction in the venture industry nationwide. But while the industry has generally bounced back to pre-recession levels in traditional bastions such as the Silicon Valley and Boston, annual investment in New Mexico remains at about one third the levels it reached before 2008.
About $40 million per year in venture capital flowed into local startups in 2012 and 2013, according to the New Mexico Venture Capital Association. That compares to about $120 million annually in 2007 and 2008.
Part of the problem is many local venture firms have fully invested their money from previous funds, and the dollars remaining in them are generally held in reserve to help companies that already received funding continue to grow, said Bill Bice, general partner with the Verge Fund and chairman of the new ABQid accelerator program in Albuquerque.
“Most funds in New Mexico like Verge are at the end of their funding cycle,” Bice said. “There’s less capital available now, and that means new startups will have to work harder than prior to the recession to attract investment.”
But there are still significant sources of seed and early-stage funding available, such as the Venture Acceleration Fund managed by Los Alamos National Laboratory. That LANL program – supported as well by Los Alamos County, the city of Santa Fe and the New Mexico Manufacturing Extension Partnership – provides small grants of $10,000 to $100,000 to startups in northern and central New Mexico, with about $3 million invested in 49 companies since the program launched in 2006.
The ABQid accelerator, which launched this summer, also provides 90-day mentoring and assistance to select startups to launch their businesses, plus seed money to move forward. And many companies can turn to crowdfunding for initial seed capital, as well as microlending organizations, such as Accion, The Loan Fund and WESST in Albuquerque.
All of those options will be discussed at the forum, including specific presentations about ABQid by Bice, and about the Venture Acceleration Fund by Shandra Clow, LANL’s regional business development executive.
But while those funding sources can help startups begin forming their businesses, the startups will need to make a lot of progress in building out their companies and demonstrating the viability of their products or services in the market to attract venture or Angel investment.
The NM Angels, for example – which includes about 70 individual investors who pool their money to back startup companies – is a good source of potential early stage capital, having provided well over $7 million for about two dozen startups since the recession. But there’s a lot of competition to win their backing, said New Mexico Angels President John Chavez, who also will speak at the forum.
“There is money for early-stage opportunities, but not every deal will get funded, because investors are very discriminating,” Chavez said. “There are lots of places for people to put their money, so as entrepreneurs, you have to try and make yourself stand out. You have to clearly define what you’re doing, and show progress with as little capital as possible.”
The companies that show the most progress with the fewest resources, and that show clear market demand for their product with revenue coming in, will stand the best chance of attracting venture capital, Bice said.
“The good news is, you can do a lot more cost-effectively to build startups today,” he said. “What cost $10 million 15 years ago you can do with maybe $100,000 now.”
That’s because of huge advances in technology, such as cloud computing, that allows companies to avoid investments in expensive computer infrastructure. Things like 3-D printing also let small firms prototype new products for little money, produce small batches of goods for sale to start out and then scale up over time.
“It’s an order of magnitude difference in costs for startups today, and that’s led to changes in funding because investors are now sitting back more to wait and see who really takes off before they step in,” Bice said. “That means entrepreneurs must show the fortitude to take seed funds from family, friends or elsewhere to build something up that’s really worth it for professional investors to get involved.”
For more information, visit the Coronado website at cvf-nm.org.