Wednesday, March 12, 2008
N.M. 1st In Venture Capital Growth
By Andrew Webb
Copyright © 2008 Albuquerque Journal; Journal Staff Writer
Thanks to aggressive government and community efforts and the advantage of starting with nearly nothing New Mexico's venture capital industry ranks No. 1 for growth over the past decade.
A new nationwide survey by the National Venture Capital Association found investment activity here grew by 375 percent between 1997 and 2007, putting the state well ahead of traditional venture capital hot spots like Austin and the Silicon Valley for growth.
The study also pinpointed other up-and-comers, such as Seattle, Pittsburgh and Washington, D.C.
NVCA President Mark Heesen called investment growth "organic."
"Once a critical mass of companies is funded in a certain region, a new ecosystem will develop," he said in a statement. "It is very magnetic in the sense that startups breed innovative thinkers who, in turn, attract venture capitalists."
According to figures provided by venture firms to the NVCA, investors put $128 million into 21 companies here in 2007, including major investments in Advent Solar, Miox Corp. and Aspen Avionics.
In 1997, a comparatively paltry $27 million was invested in three companies.
Local investors credited several factors for the growth, including:
Investment of state permanent fund money into venture capital funds, with the requirement that those funds open local offices and commit to making investments here. Though the state has had the legal ability to make such investments since the mid-1990s, the 2003 Legislature, with the backing of Gov. Bill Richardson, doubled the amount that could be invested. Since 1994, the state has committed nearly $340 million to about 26 venture capital firms, most of which remain active here.
Investment of permanent fund cash directly into companies. Also enacted in 2003, the state experimented with several methods to make direct investments, and completed several, including major equity stakes in Eclipse Aviation. Ultimately, the state Investment Council funded a privately managed investment pool, Sun Mountain Capital, which, along with partner investors, has invested in several companies.
The work of local nonprofits, such as Technology Ventures Corp., a Lockheed Martin-funded nonprofit that seeks to match early-stage companies with investors, and the Small Business Investment Corp., which manages a pool of state money for early-stage investments and microlending.
Efforts by trade organizations like New Mexico Angels and Coronado Ventures Forum, both of which hold regular meetings in which potential investors can learn about new opportunities.
The wealth of existing research and development at the state's national labs, universities and other institutions in hot investment realms, such as renewable energy and life sciences technologies.
Sun Mountain Capital managing partner Brian Birk called the ranking "gratifying."
"New Mexico has always had the raw materials but has lacked just a couple ingredients," he said. "Now that those have been addressed, the state is really being discovered."
The study, which excluded areas that had less than $100 million in investment in 2007, ranked Pittsburgh at No. 2, with 267 percent investment activity growth, and Seattle at No. 3 with 103 percent growth. Los Angeles and Washington, D.C., rounded out the top five.
George Richmond, who in 1999 founded a local private investor group now called New Mexico Angels, said investor-funded companies are known for driving the creation of high-wage jobs and wealth.
"I don't think New Mexico can be first in growth every year, but we're moving into the right area," he said.
Stephanie Spong, an Albuquerque-based principal for Utah's Epic Ventures, one of the most active firms doing business here, said the state is well-positioned to take advantage of expected growth in renewable energy and other "green" tech, and expects venture activity to continue to grow.
"It's a great place to live in terms of lifestyle ... with a lower cost to live than some of the traditional epicenters of VC," she said. "We're still a very early-stage region, but there's a tremendous commitment from the people on the ground."