With more aspiring entrepreneurs graduating from New Mexico’s emerging business accelerators and local startup mania taking root, many new businesses will, eventually, need to find private investment to grow and prosper.
But local venture funding is hard to come by these days and national competition is fierce when seeking backing from out-of-state investors.
To better navigate those troubled waters, the Coronado Ventures Forum is sponsoring a panel discussion on Thursday at the Albuquerque International Balloon Museum, where seasoned venture investors from New Mexico and other states will orient local entrepreneurs about how to grab the attention of venture capitalists and possibly obtain funding for growth.
“There’s a lot of energy and momentum growing in our entrepreneurial ecosystem, with good, quality business startups and investment opportunities emerging,” said Katie Szczepaniak Rice, forum president and head of the Epic Ventures office in New Mexico. “At the forum, many of those entrepreneurs can learn about what investors look for, how investors evaluate deals and when is the right time for entrepreneurs to approach them. We’ll have a mix of in-state and out-of-state investors talking about deal flow in the Rocky Mountain Region and what startups will face when they pitch their ideas.”
That’s particularly critical for New Mexico’s emerging generation of aspiring entrepreneurs, since local venture investment remains stagnant. That means most companies will have to seek growth capital in places like the Silicon Valley, where deep-pocketed venture funds are concentrated.
The problem is, when it comes to private equity, New Mexico has never recovered from the recession.
Less than $29 million in venture funds flowed into local companies in 2014, according to the latest statistics available from the New Mexico Venture Capital Association. That’s a 31 percent drop from 2013, when local startups received nearly $42 million in venture investment. And it’s the lowest annual flow of funding since 2009, when the recession knocked the wind out of the industry.
Nationally, the venture industry is soaring. Total venture investment last year reached $48 billion – its highest level since before the dot.com bust in 2000, according to PricewaterhouseCoopers and the National Venture Capital Association. That represents a 50 percent leap from the last national peak in venture activity in 2007 before the recession.
“The funding environment has been robust in the past several years nationwide, with the bulk of that activity on the coasts and in Texas,”
said Bert Roberts, a principal with Sorenson Capital in Utah and a panelist at the upcoming Coronado event.
A number of factors have contributed to New Mexico’s decline. For one thing, investments in locally active venture funds by the New Mexico State Investment Council is far lower than in previous years, following a four-year freeze in such investments after the recession hit, from 2008-2012. SIC funding began to flow again in 2013, but at a far slower pace than in the past.
In addition, many venture firms that previously operated here are no longer active in New Mexico. And many of those still here have not raised new funds for fresh investments in startup companies. Rather, they’re generally focused on funding for companies already in their portfolios, not new, emerging opportunities, said David Blivin, managing partner of Cottonwood Technology Fund – one of the few firms still actively involved in early-stage investments in New Mexico.
“We’re doing investments, but we don’t see many others doing it now in New Mexico,” Blivin said. “Activity is pretty limited.”
That can become a problem as new startups emerge from New Mexico accelerators and other programs.
Many startups do find “seed” capital to begin building their businesses, such as from the New Mexico Angels, and from the accelerators themselves, which often make initial commitments to some of the companies that graduate from their programs. That can help many of them to finish developing products and services, begin testing them in the market and even start to form management teams to move forward.
But there’s a scarcity of “early-stage” capital in New Mexico, which generally ranges from upper-six-figure investments to $2 million or $3 million. That funding is critical for companies beyond the seed stage to keep growing and to gain enough traction to attract larger-scale venture investors later on. As a result, startups need to work harder to grow their businesses with lean, mean strategies based on little capital.
That’s the key hurdle before a company seeks out-of-state investment, said Bill Bice, general partner with the Verge Fund and chairman of Albuquerque’s ABQid accelerator program. Bice will also be a panelist at the Coronado event.
“It’s challenging to raise capital and it’s the last issue new startups should be tackling,” Bice said. “Companies need to gain market traction first before seeking out-of-state financing. You need to be willing to do the hard work to first scrape together resources for seed funding and begin growing.”
The good news is, once companies have achieved enough milestones to draw outside attention, raising money from out of state is possible, he said.
“If you put in the hard work and have a good deal to offer, you can raise money,” he said.
At that point, startups must be willing to seek far and wide for capital, said Francine Sommer of Village Ventures, who will moderate the Coronado panel.
“Companies outside New Mexico also frequently have to seek investors beyond their own states,” Sommer said. “They do the research on venture capital funds that are most appropriate for their businesses, and then approach them on the East and West Coasts. We need to do that in New Mexico as well.”
On the upside, out-of-state investors are taking notice of New Mexico’s startup environment with its new business accelerators, programs to mentor aspiring entrepreneurs, and its emerging, innovative companies.
“I want to learn more about the New Mexico environment,” said Nathan Mortensen, a principal with Tallwave Capital in Arizona and another Coronado panelist. “That’s one of the reasons I’m participating in the forum – to learn about the type of companies coming out of New Mexico and build some relationships.”