CAPITAL INFUSION
Startups gain traction with state-backed venture investments
Startups gain traction with state-backed venture investments
New Mexico State University is betting $100,000 on new technology that could kick up the heat in bitter winter while also lowering home heating bills. Las Cruces-based startup EVUS Inc. is building the technology into a drop-in device for existing heating, ventilation and air conditioning, or HVAC systems, at NMSU’s Arrowhead Center, which manages all of the university’s technology transfer and commercialization programs.
EVUS President and CEO Patricio Reygadas, a Chilean engineer who created the technology with partners in his home country, established operations in Las Cruces as a beachhead into the U.S. market, where 35 percent of all HVAC-related energy is consumed.
“Arrowhead is the perfect place to continue building our technology,” Reygadas said. “We have access to resources at NMSU, including students and faculty, and we’re close to the border where we can take advantage of the Juarez-El Paso manufacturing and logistics clusters. Arrowhead is helping us a lot.”
In August, NMSU’s new Arrowhead Innovation Fund contributed $100,000 to a $700,000 round of seed capital to help EVUS complete its first product prototype for testing and certification in a private lab. It’s the first investment made by Arrowhead’s $1.87 million fund, which received $800,000 last year from the New Mexico Catalyst Fund, a $20 million pool of money that the State Investment Council approved in 2016 to invest in startup innovation around the state.
Microfunds like Arrowhead match Catalyst contributions dollar-for-dollar and are expected to invest the money over five years in homegrown companies like EVUS.
“This deal launches us into a fouryear investment period,” said Innovation Fund President and Managing Director Estela Hernandez. “We hope to do up to three investments per year in a total of 12 pre-seed and early-stage deals. This is the first venture capital fund to operate in southern New Mexico, and we expect it to help spearhead the entrepreneurial system down here.”
Arrowhead is one of six New Mexicobased funds that have received Catalyst money to date. The recipients are now starting to invest that capital, with five startups in Albuquerque and Las Cruces receiving money since last year.
Most of the Catalyst-backed funds had to first finish raising matching dollars before they could begin investing. But with that work largely done, investments are expected to gain momentum in coming months, said Brian Birk, managing director of Santa Fe-based Sun Mountain Capital, which manages Catalyst Fund commitments for the SIC.
“Catalyst Fund contributions are contingent on raising private capital, and a lot them had to wrap that up,” Birk said. “Many of them have now completed the process and are turning their
attention to investments. I believe we’ll see a noticeable acceleration in startup funding going forward.”
About $13 million in Catalyst money has now been committed to local funds. Apart from Arrowhead, that includes Cottonwood Technology, Tramway Venture Partners, NMA Ventures, BlueStone Venture Partners, and an investment fund set up by the ABQid business accelerator.
BlueStone is the latest Catalyst recipient, with $3 million approved by Sun Mountain in August.
“We have two more fund commitments that are being finalized now,” Birk said. “We expect to close on at least one of them in November.”
A total of $40 million in capital could flow to some 50 startups under the program in the next few years, assuming each fund recipient invests in eight to 10 companies.
In addition to Arrowhead’s commitment to EVUS, Cottonwood and Tramway have partnered on investments in two companies, including Armonica Technologies and BennuBio, both Albuquerque startups with University of New Mexico technologies that could greatly speed DNA sequencing and cell screening for diagnostics and drug development, respectively.
Cottonwood also invested in Albuquerque-based BayoTech Inc., which is using Sandia National Laboratories technology to build modular, transportable production units to make hydrogen, ammonia and fertilizer. And ABQid invested in AdWallet, which is marketing a mobile app that helps advertisers guarantee customer engagement by paying people to watch ads.
NMA Ventures, meanwhile, is finishing due diligence on its first investments.
“We’re getting ready to close on our first investment in the next few weeks,” said NMA Managing Partner Dorian Rader. “It’s been in the works for awhile.”
The Catalyst goal is to provide enough seed funding for fledgling startups to build prototypes of their products and services, assemble solid management teams, begin working with customers and start generating some revenue. That can get them past the infamous “valley of death,” where early stage companies lack the capital to achieve those milestones. That’s critical to attract larger rounds of funding from more established, out-ofstate venture firms to allow companies to continue their march to market.
“We have many entrepreneurs coming out of Arrowhead programs and then hitting the valley of death,” Hernandez said. “Now, we can provide significant investments to help some of those companies move the needle to get to the next level.”
Catalyst-backed funding already helped BayoTech prove its technology to attract a large, $12.5 million investment this year, most of it from a fertilizer manufacturer that’s now partnering with the company.
“After the Catalyst Fund investment, BayoTech received significant funding from one of the largest fertilizer makers in the world,” Birk said. “That wouldn’t have happened without the Catalyst boost to first demonstrate its technology. I believe we’ll see a lot more of that with other companies that get Catalystbacked investments.”
Catalyst funding is also helping companies like EVUS to grow roots in New Mexico, rather than move to other states.
“We’re now perceived as a New Mexico company, and we’ll remain based here going forward,” Reygadas said. “The investment helps us grow our company in Las Cruces.”