NM venture investments making strong comeback
Venture investment in New Mexico reached $128 million in 2017, its highest level since before the recession in 2008. On a per capita basis, the state placed 15th in the nation, and third in the Southwest region for venture activity, according to a year-end tally by Thompson Reuters.
That’s a sharp jump for New Mexico, which has struggled to rebuild venture funding since the recession, when local activity nearly ground to a halt.
Investments fell from a pre-recession level of about $120 million per year in 2007 and 2008 to just $22 million in 2009 as startups crashed and burned and investors concentrated on keeping existing businesses alive rather than fund new ones.
Up through 2016, investments hovered at about $35 million per year. And the number of locally active venture firms shrank from about 15 before the recession to just half a dozen.
But the industry is growing again, fed by new state efforts to attract more firms to the state, and to grow a sustainable local base for seed and early-stage capital through the Catalyst Fund.
Statutes governing the State Investment Council’s private equity investment program allow it to commit up to 9 percent of the $5.3 billion severance tax permanent fund to the local venture industry. That includes commitments to firms that invest in local companies, plus a Co-Investment Fund for direct SIC investments in businesses.
The SIC stopped funding those programs after the recession. It started again in 2014, but the council has limited fresh spending to just 5 percent of the permanent fund.
Even so, renewed SIC commitments are driving a new boom, with eight more funds now operating in New Mexico. That includes five new local funds with Catalyst backing, plus three out-of-state funds that received SIC investments to pump money into local companies.
“There’s no doubt were on an
upswing again,” said council member Harold Lavender. “We’re seeing a lot more good opportunities to invest in.”
New Mexico’s emerging innovation ecosystem of accelerators, incubators and entrepreneurial programs that help startups launch and grow is key to attracting venture firms. That, combined with potentially marketable, cuttingedge technologies at the state’s national labs and universities, is driving enthusiasm about building New Mexico’s venture industry into a sustainable source of funding for homegrown companies.
That’s critical for early stage startups to mature into firms that offer stable jobs and enough return on capital for investors. But that cycle of wealth creation is difficult to build in a small, non-traditional market like New Mexico, which struggles to capture the attention of deeppocketed, out-of-state investors.
“The jury is still out on whether we can build and sustain the momentum,” said Cottonwood Technology Funds Managing Partner David Blivin.
Prospects for sustainability are more promising today than before the recession, given the state’s newfound innovation infrastructure, which is helping to create a rich pool of entrepreneurial talent to build successful companies. And with Catalyst funding seeding more startups that can attract national-level investors as they grow, the future looks bright.
“We’re building the foundation for a whole ecosystem of success and technology-based startups statewide,” said SIC spokesman Charles Wollmann.
Indeed, rapidly-growing startups drove last year’s investment levels. Later-stage investors pumped $30 million into Santa Fe-based data analytics firm Descartes Labs. Cybersecurity firm RiskSense got $7 million, and optics sensing technology startup Trilumina Corp. received $9 million.
Those trends continue this year, but at a much slower pace. RiskSense, for example, got another $12 million in August, and chemical-production firm BayoTech received $12.5 million.
New startups are also getting funded. Green Theme Technologies, for example, got $6 million last month for novel water-proofing technology for textiles.
“There’s a pretty outstanding level of capital now to deploy in New Mexico,” said John Chavez, president of the New Mexico Angels and a general partner in Catalyst-backed NMA Ventures. “A lot of good deals are getting funded.”