Oregon House OKs venture capital bill – New Mexico to Invest in 3 Start-up Firms

The Legislature gave Oregon venture capitalists 100 million reasons to smile Thursday.

By:
Jeff Kosseff, with Dave Hogan
The Oregonian in NASVF.org

The House unanimously passed House Bill 3613, which attempts to place $100 million of the state’s Public Employees Retirement Fund in Oregon venture capital during the next 41/2 years.

But because of a few loopholes added to appease critics, Oregon startups are not guaranteed the full $100 million.

"A lot of the small startups and other emerging companies end up leaving Oregon because there’s not a venture capital market here," said Rep. Mitch Greenlick, D-Portland, sponsor of the bill, which had passed the Senate on Tuesday. "The Oregon Investment Council should look at Oregon emerging industries as a first step when looking to invest in venture capital."

Gov. Ted Kulongoski intends to sign the bill into law, spokeswoman Mary Ellen Glynn said.

Gerry Langeler, a Portland venture capitalist, said the updated bill’s attempt to place $100 million in Oregon venture capital by Jan. 1, 2008, is realistic. An older version of the bill that passed the House in April had required the council to have up to 1 percent of its investments in emerging Oregon companies "at any given time."

The change "makes me feel considerably better," Langeler said. "It’s not like they’re going to pump this out in two years. I think there’s a reasonable chance Oregon would have done this anyway."

The bill instructs the investment council to have "at least $100 million in venture capital investments in Oregon unless, under the circumstances, it is not prudent to do so." It also says whenever investing venture capital, the council must first look at opportunities in Oregon, unless it is not prudent.

The "prudent" clause provides a loophole for the council if no viable opportunities are available.

State Treasurer Randall Edwards said he prefers the updated bill because it doesn’t mandate the investments. The state pension fund already invests less than 1 percent of its $36.5 billion in venture capital, and it has recently decided to increase that amount.

"We have a policy to look in Oregon," Edwards said. "This bill just sharpens that focus."

Still, the bill might not necessarily fund Oregon companies, said Langeler, the venture capitalist.

"Oregon is not going to invest directly in startups — they give it to people like us," Langeler said. "Once they give it to us, we can’t guarantee the money will go to Oregon. Clearly, because we’re in Oregon, we’re going to look here first. But if we didn’t happen to find any, it would be imprudent for us to invest money in Oregon."

But Harvey Mathews, a lobbyist for Associated Oregon Industries, said the bill is intended to direct the money to Oregon companies. The council must report to the Legislature on the investments each year.

"There will be considerable legislative oversight," Mathews said. "If they are not investing in Oregon-based businesses, there will be further clarification."

The definite winners in the bill will be venture capitalists, who typically collect annual fees of 2 percent to 2.5 percent on the investments they manage, said Ralph Shaw, a Portland venture capitalist.

"The venture capitalists never lose," Shaw said.

The Public Employees Retirement System faced a long-term shortfall of more than $16 billion this year, and the Legislature has made several changes to reduce the system’s costs. The system includes retirement accounts for about 300,000 current and former employees of state and local government.

Shaw said it’s important to avoid dismissing the $100 million as a small part of a $36.5 billion pension fund.

"It adds up," Shaw said. "Before you know it, we’re spending billions of dollars in the aggregate on high-risk ventures."

The state should consider whether emerging companies are the best choices for investments, said Bill Parish, a Portland investment adviser.

"I wonder why it’s so wrong to support existing businesses and why we always have to look for a sexier thing," Parish said.

State Rep. Patti Smith, chairwoman of the Trade and Economic Development Committee, said the bill could create 15,000 Oregon jobs, given the high percentage of small businesses in the state.

"There’s exceptional growth potential," said Smith, R-Corbett.

The bill also made a technical change that allows the Oregon Growth Account, a lottery-based venture capital fund, to begin looking for investments again. The fund had been drained of uncommitted funds to help balance the state budget.

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New Mexico to Invest in 3 Start-up Firms

By:
Shea Andersen
Albuquerque Tribune

They didn’t wait long.

Just 10 days after getting the authority to do so, the newly formed advisory council to the New Mexico Direct Invest Fund on Thursday recommended that the state sink $29 million worth of equity investment money into three start-up companies.

The biggest investment recommended Thursday is $15 million for what appears to be a management buyout of the Philips Semiconductor plant in Albuquerque, which is slated for closure in September.

The other two home-grown efforts recommended for state equity investment are Eclipse Aviation, which was recommended for $10 million, and PowerWAN, a telecommunications company, for $4 million.

Philips in November announced it would close its Albuquerque semiconductor factory, idling about 600 workers there.

The state’s investment advisory council recommended $15 million for Mesa Semiconductors, started by former managers of the plant.

"We’re reviving the old Philips plant into new jobs," said Gov. Bill Richardson. "Mesa is planning to buy and rejuvenate the Philips Semiconductor plant."

But it’s far from a done deal, according to a Philips spokesman.

"Philips is in negotiations with Mesa Semiconductor and other organizations, but no agreements have been reached," said Paul Morrison, a Philips spokesman. "Philips remains committed to the closure plan."

Mayor Martin Chavez said the main issue is just how much Philips owes Albuquerque in "clawbacks," or refunds from an industrial revenue bond granted Philips years ago.

Chavez said he thinks Philips owes the city $18 million.

Philips, Chavez said, thinks it owes the city $8 million.

"That issue has to be resolved," Chavez said.

Still, Chavez believes that no matter how much the city gets back from Philips, the experiment in municipal assistance for Philips was a good one that paid off.

"I think that even if we were not to get a single penny in clawbacks at this point, Philips has stayed open long enough and gave people enough jobs that it ws a good deal," Chavez said.

Despite these complications, state leaders were energized by Thursday’s dramatic announcement.

"It sends a terrific message to the country," said Economic Development Cabinet Secretary Rick Homans. "It’s all about having confidence in ourselves."

They’d better be confident. The direct equity model of investment means the state will become part owner of the companies it invests in, according to Gary Bland, the state’s Chief Investment Officer.

The investment fund was created this year by the Legislature to use interest from the Land Grant Permanent Fund to directly co-invest in New Mexico companies. It is worth about $200 million.

The state would have a 35 percent equity ownership in Mesa, about 5 percent of common stock in Eclipse, and about 16 percent ownership of PowerWAN.

Investing in an operation like the Philips plant, Bland said, was a good idea based on the facility itself.

"The land value of the facility already mitigates the risk of the investment," Bland said.

Homans said the demand for the sort of "boutique" semiconductor equipment made at the Albuquerque plant was on the rise, even if Philips thought the plant wasn’t worth keeping open.

"There are eight to 15 key customers that need these products," Homans said. That list includes Philips itself, which has kept the plant running at almost 98 percent capacity since the closure announcement.

If Mesa’s plan works, the company will hire about 300 people to run the plant. Jon Thompson, president and CEO of Mesa, was previously head of multimedia operations for Philips’ international operations and Glen Balzer, Mesa’s vice president, was in charge of international sales for Philips.

As for Eclipse, Bland said the company has already proved itself.

"They’ve got a lot of the problems behind them," Bland said.

Perhaps the least known of the three companies is PowerWAN, a start-up company with the technology to provide high-speed Internet access through electrical power lines. The company’s CEO, John Wheaton, said the Direct Investment Fund was a big part of his deciding to locate his 15-person start-up company in Albuquerque.

"The confluence of my familiarity with New Mexico’s national labs, the new direct invest program, and the talent pool of workers in New Mexico – all this has come together to make us decide to locate in the state," Wheaton said in a statement.

The three companies will go before the full State Investment Council for final approval of the recommended investments on July 22, but Richardson indicated the deal was all but done.

"It looks pretty good for that to happen," Richardson said.