A new $1 million co-investment fund managed by the University of New Mexico Foundation since last fall has pumped $489,000 into four startup companies that are working to commercialize UNM technologies, and another two investments of up to $100,000 each are in the works.
The fund, approved by UNM’s Board of Regents last spring, allows the Science and Technology Corp. – UNM’s technology transfer office – to propose direct investments in companies with university technology on a one-for-one matching basis with private investment in those firms. As a result, since the foundation began approving commitments last October, UNM has helped local startups raise more than $1 million to push university technologies closer to market, said STC President and CEO Lisa Kuuttila.
“With the matching funds, it’s over $1 million that has gone into those companies, some of which are now raising larger rounds of capital,” Kuuttila said. “UNM’s backing helps them to attract funding from other investors and it helps them leverage the money they have on hand to continue commercializing technologies.”
Two of the four companies receiving funding remain confidential because those firms are now raising larger rounds of capital from private investors and can’t publicly discuss commitments received until their fundraising processes officially close, Kuuttila said.
The other two UNM investments, however, are public. They include a $100,000 commitment to Pajarito Powder, which is commercializing new fuel-cell technology from UNM, and $89,000 provided to Ecopesticides International, which is developing a method to enhance the ability of fungus and other natural organisms to kill agricultural pests.
More commitments are in the works.
“We have two more companies teed up to look at their technologies for funding in the next few weeks and a number of other startups are asking about funding, as well,” Kuuttila said.
UNM regents authorized use of up to 0.5 percent of the principal held by the foundation last April, or a total of $1.8 million of the $390 million in the corpus at that time. For now, the foundation is drawing only on $1 million of the total authorized for co-investments in companies, although once that’s exhausted, the STC can ask the foundation to release more of the total amount approved by regents, Kuuttila said.
The investments are limited to a maximum of $100,000 for each company that receives funding. And each investment must first be vetted and approved by a co-investment committee that STC and the foundation have set up to review applications from startup firms.
The funding helps entrepreneurs bridge what’s known as the “valley of death” – a financial ravine where startups need a small amount of capital to further develop and prove their technologies before larger investors are willing to step in to take new products or services to market.
“Often, this is money that’s pretty early going into the company,” Kuuttila said. “That’s the hardest money to raise and New Mexico in particular doesn’t have a lot of investment capital that startups can turn to.”
It’s a technology transfer tool that many other universities have adopted in recent years.
“Some universities have seed funds and some have larger pools of investment capital,” Kuuttila said. “The use of such co-investment funds is becoming pretty common. But this is the first time for UNM and it’s a big step for us.”
Until now, UNM had provided only small grants, or “gap funding,” of up to $25,000 for university faculty and researchers to continue developing commercially promising technologies after study grants had dried up. That funding, which came to an end last fall, totaled $550,000 since 2007 for 24 different technologies.
The grants allowed some scientists to prove their discoveries enough for investment angels and other early-stage investors to step in with seed funding, leading to eight new startups being formed over the past eight years, Kuuttila said.
The co-investment fund, however, provides assistance at the next stage of development, once a startup has already been formed.
That helps the company entice more private investors because it shows institutional commitment by UNM to back commercialization of its technologies, said John Chavez, president of the New Mexico Angels, which pools the resources of about 70 individuals for investments in startups.
“It tells investors that UNM stands behind its technology transfer efforts and that they’re willing to have skin in the game,” Chavez said. “And for small startup companies, $100,000 can be a significant sum to help them continue basic research and development to prove a technology concept.”
UNM’s investment in EcoPesticides helped that company raise a total of $400,000 in the fall, including more than $300,000 from angels and from a private equity fund in Las Vegas, Nev., said company President and CEO Les Stewart.
The company is commercializing a UNM technology to encapsulate fungus, bacteria and other natural organisms that kill agricultural pests to allow them to better resist heat and ultraviolet light. That helps them last longer, improving their ability to be used as biopesticides.
UNM and other funding allowed EcoPesticides to set up a wet lab at the Santa Fe Incubator to continue developing its technology. It also provided support for field tests conducted in Africa and in the state of Montana against locusts and grasshoppers.
“UNM’s backing gave us a boost in raising capital among other investors and we’ve used the money to move into a commercial setting in Santa Fe,” Stewart said.
Meanwhile, Zocere Inc. – an Albuquerque-based startup that’s marketing a peptide developed by UNM to protect brain cells against damage from strokes – is now raising $100,000 from the New Mexico Angels with the expectation of receiving $100,000 in matching funds from UNM. The company previously raised $465,000 from the Angels and from an out-of-state private-equity fund, said President and CEO Wayne Laslie.
“Another $200,000 is not a lot for a drug development company, but it buys us more time to move our product through development as we continue to raise money for toxicology and other pre-clinical studies,” Laslie said. “It helps get us to the next phase in our business development.”