Re-minted SBIC looks to bridge small biz cash gap in New Mexico

Armed with re-written legislation that broadens its powers, a local organization is gearing up to offer seed-stage investments and small startup loans to New Mexico businesses.

By:
Andrew Webb
New Mexico Business Weekly
in NASVF.org

The New Mexico Small Business Investment Corp. (SBIC) is charged with investing from a $10 million pool in small businesses. It does so through intermediaries like "microlenders" — lenders that serve businesses too young to qualify for traditional commercial loans — and seed-stage equity capital firms, says Paul Goblet, a former investment banker hired by the organization to serve as its advisor.

"It’s designed to be a catalyst to retain jobs and improve the general economic climate whereever possible," he said after the group’s monthly meeting last week, during which the SBIC’s eight-member board hammered out the details on how the money would be invested and discussed several planned commitments.

Their hope is to fill in the gap between the time a company is founded and when it becomes viable for traditional bank financing or venture capital.

"Where small businesses fail is the $100,000 to $1 million gap," says SBIC board member and director of the McCune Charitable Foundation, Owen Lopez. "There’s no capital to take them to the next level."

The State Investment Council’s agressive regional investment program, which has committed some $133 million to more than a dozen venture capital firms that now have offices in the state since its inception in the mid-1990s, has resulted in increased financial services for mature companies, Goblet says.

"But what we have in New Mexico are technologists and technology, a guy with a patent and a job at the lab," says Goblet, who formerly served on an advisory committee of the State Investment Council. "We don’t have a lot of full blown companies. We really had a mismatch where people we’d given capital to want to invest more than $2 million. What we were missing was the strip of seed-stage capital, where the first investment might be $50,000."

Like the State Investment Council, the SBIC gets its funding from the state’s multi-billion dollar permanent fund. Legislation enacted during the 2001 legislative session created it as a nonprofit, quasi-government corporation. The SBIC was allocated one quarter of one percent of the severance tax, but the original legislation kept the scope of its investments extremely narrow, Goblet says.

The original rules allowed the SBIC to make a preferred stock investment in a New Mexico company that had received a loan from a New Mexico financial institution, where that loan was guaranteed by the Small Business Administration and the U.S. Dept. of Agriculture. And that loan had to be used for infrastructure.

"That’s not where the need was," Goblet says. "Where there are hard assets, like a building, the bank will lend 80 or 90 percent of the loaned value."

He recommended that the board — which includes the state treasurer, the state investment officer or a designee from that office, and six members appointed by the governor — seek amendments to the original SBIC legislation to broaden its investment power. That legislation passed successfully this year.

Since then, the board has heard presentations from several seed-stage capital providers and lenders, and Goblet says the group expects to eventually develop partnerships with four or five alternative lenders and two or three seed stage capital firms.

Besides funneling the money through lenders or venture firms, the board discussed Monday following the State Investment Council’s lead and making some direct investments in companies. The group plans to further solidify its policies for investing the $10 million fund and finalize its first committments in upcoming meetings.

"The challenge is to get this money out there working," board chairman and business consultant Chuck Wellborn told the group. "But there are limits to how far we can go."

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