SIC to pump more into local startups
State Investment Council votes to boost investment in private equity program
New Mexico’s 11-member State Investment Council voted unanimously Tuesday to pump about $200 million in fresh capital into its Private Equity Investment Program to provide more money for local startup companies.
The council agreed to commit up to 9% of the state’s $5.5 billion Severance Tax Permanent Fund for investments in local businesses. That’s the maximum amount under state statutes that the SIC can dedicate to venture activity in New Mexico.
Until now, the SIC had self-imposed a 5% cap on those investments, given the historically lower returns and higher risks associated with the program. But the council wants to strengthen New
Mexico’s growing entrepreneurial ecosystem, which has matured significantly in recent years through new business accelerators, support programs, and early-stage venture funds that have helped start and grow new companies across the state, said Gov. Michelle Lujan Grisham, chairwoman of the council.
“By targeting strategic investments in our own backyard, we can achieve positive financial returns while also creating jobs and new industries here in New Mexico,” Lujan Grisham said in a prepared statement. “Leveraging the significant intellectual and human capital that exists at our national labs, research universities and with entrepreneurs across our state helps us make smarter and more significant investments in New Mexico and accelerates the expansion of our state’s economy.”
Pumping more money into the private equity program generates multiple benefits, diversifying the SIC’s investment portfolio while also creating jobs and supporting emerging businesses in New Mexico, said State Land Commissioner Stephanie Garcia Richard, also a council member.
“These investments help New Mexico diversify its economy while at the same time directly supporting the people that work here, live here and call our state home,” Garcia Richard said in a statement.
Every 1% in additional commitments from the severance tax fund equals about $50 million in new investment capital, meaning about $200 million in fresh money will become available through the private equity program. But that will take time to deploy, SIC spokesman Charles Wollmann said.
“The extra capacity will be rolled out over the coming years,” Wollmann said. “We’ll steadily build the program up as we go forward.”
The council also voted 10-1 on Tuesday to ask the State Legislature next year to increase the statutory limit for private equity investments to 11% of the severance tax fund. If supported by legislators, that could add another $100 million in capital to the program in coming years, depending on the future value of the permanent fund.
Since the program began in 1993, the SIC has invested about $360 million in 73 New Mexico companies. That includes about $135 million committed to venture funds that pump money into local companies, as well as direct investments in startup firms through a $200 million fund that Santa Fe-based Sun Mountain Capital manages for the SIC.
The venture funds that receive SIC money must commit to investing an equal amount of money in local companies, or encourage others to invest at least that much in businesses here. Those investments, in turn, boost the ability of local startups to attract more capital from other sources.
Historically, businesses receiving money from the SIC’s co-investment have raised nearly $9 in additional funding from other venture firms for every $1 in SIC commitments, according to Sun Mountain Capital.
Sun Mountain also manages a $20 million “Catalyst Fund” that includes $10 million from the SIC and $5 million each from the U.S. Treasury and private investors for investment in early-stage venture firms in New Mexico. That “fund of funds,” which launched in 2016, has provided about $13 million to six local funds that provide seed and early-stage capital to startups.
Long-term investment performance from commitments through the private equity program have improved significantly in recent years, returning 7.7% annually over the past five years, and an average of 6.75% over the past decade, according to the SIC. The council expects to commit between $75 million and $125 million more through the program to venture funds and local companies next year.