Homegrown VCs Want New Mexico Seed Money & Bill Would Guarantee Pennsylvania Investmen

In the last nine months, John Bloodworth and his associates have been visiting small businesses all over New Mexico.

In travels to far-flung locales like Hobbs, Mountainair, Angel Fire and Las Cruces, they’ve chatted with snowboard developers, hotel renovators, beverage makers and food processors.

By:
Andrew Webb
The New Mexico Business Weekly

http://www.nasvf.org/web/allpress.nsf/pages/8362

But if you think Bloodworth sounds like another would-be politician making the whistle stop rounds, touting his support for "small business," you’re wrong. He wants to invest in these companies.

Bloodworth’s five-person private equity firm, Mesa Venture LLC, is one of about half a dozen investment companies — each with a unique twist — vying to be among New Mexico’s first-ever homegrown venture capital firms.

Representatives from most of them showed up at a recent meeting held by an advisory committee to the State Investment Council, whose aggressive regional investment program aims to attract venture capital investment to the state by participating in equity firms’ fundraising. Though it’s been around for about a decade, the program has picked up speed in the last two years, and that, coupled with an improving nationwide venture capital scene, has helped nurture the state’s first crop of homegrown investors.

While there are around 15 out-of-state firms with local offices, these are the first whose headquarters are in New Mexico, says Randy Wilson, of Albuquerque-based nonprofit Technology Ventures Corp. "It’s a new phenomenon," he says.

"It’s an interesting watershed," observes Tom Stephenson, a local representative for Texas-based Murphree Venture Partners, which is currently raising money for Verge Fund, his planned early-stage capital firm to be based in New Mexico.

"For the first time in the history of the state, we’re going to have some venture firms headquartered here."

Among them:

o Santa Fe-based Mesa, which targets fledgling non-technology companies — like food processors — with investments of $100,000 to $1 million and then helps those firms recruit and train management talent. Officially founded in 2001, Mesa began fundraising and looking at investments in the last year.

o Stephenson’s Verge, developed in partnership with principals from the local office of Arizona venture capital firm Valley Ventures, aims to put New Mexico’s annual $4.8 billion in government research funding to work with seed investments in small tech transfer companies.

o Zircle, a concept developed by Albuquerque entrepreneur Tom Brennan and former biotech executive Mark Benak in partnership with Sandia National Laboratories. Investing from an anticipated fund of between $40 and $60 million, Zircle plans to take technologies developed in lab programs and build private companies around them.

o Flywheel Ventures, with offices in Santa Fe and Silicon Valley, aims to provide seed-stage investments in companies in New Mexico and the southwest. The firm has made inroads with small investments or other help to about a half dozen companies in the state since opening its New Mexico office in 2000.

o Village Ventures, which oversees a network of 14 independent funds from its headquarters in Massachusetts, wants to develop one in New Mexico. The firm targets areas underserved by the venture capital industry, where it then raises funds of $10 to $55 million to make investments of $50,000 and up in local companies.

o And Rio Grande Venture Partners, the most traditional of all six, aims to close a $100 million fund this spring from which it will make investments in established technology firms.

"We want to find companies with a product that can be demonstrated," says managing director Richard Cassin.

"And then turn that into a viable business that will create a nice return."

Show us the money

Though their funding comes from a wide variety of sources, including private individuals, other funds and institutions, all six firms are awaiting word on whether or not some of that money will come from the investment council’s program.

Since legislation created it in 1993, the council’s regional venture capital program has invested nearly $140 million in venture capital firms from the state’s $11.2 billion permanent fund. All those who receive money are required to maintain an office in the state.

The six newcomers are currently in a holding pattern as the council works to find a new third party investment advisor to replace Pacific Corporate Group, which it dropped last year in the wake of a series of investments that later fell apart.

The council does not have an estimate as to when a new advisor will be announced, says spokesman Charlie Wollmann.

The state is under no obligation to fund any of the proposals, and representatives for all say they are actively approaching businesses and looking for other funding sources. Several, including Flywheel and Mesa, have received commitments from another state investment agency, the Small Business Investment Corporation. Others, like Zircle, are approaching other potential investors, says Brennan, who notes that he’s already identified several commercially viable technologies while roaming the halls at Sandia.

Flywheel’s Trevor Loy says New Mexico’s business opportunities are popping up on radars nationwide.

"I won’t say it’s going to be the next Silicon Valley, but it does have the potential to be the next San Diego or Research Triangle Park," he says. "That message has been well-received."

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Bill Would Guarantee Pennsylvania Investment

Harrisburg remains high on the idea of using venture capital to jump-start investment in the state.

By:
Patty Tascarella, and Peter Key
The Business Journal of Pittsburgh

http://www.nasvf.org/web/allpress.nsf/pages/8363

A key component of the economic stimulus bill being considered in the state capital calls for the establishment of a $250 million fund to guarantee venture investments in Pennsylvania companies. The portion of the bill that would establish the New Ventures Investment Guarantee Program is aimed at getting top venture capital firms not only to invest in Pennsylvania companies but also to set up offices in the state. The aim is to bring new money into Pennsylvania.

And the target companies are a far wider range than the biotechnology and life sciences startups that recent state efforts sought to nurture.

"It’s not targeted to a particular industry," said Richard Overmoyer, deputy secretary for technology investment, Pennsylvania Department of Community and Economic Development.

"I’ve been concerned about funding in the manufacturing sector," he continued. "Many of these companies are family-owned businesses, and there are a lot of opportunities for transitions, having capital available to help a company become employee-owned or change hands."

Unlike other parts of the stimulus package, the venture guarantee portion enjoys widespread support. Its backers include the Democratic and Republican caucuses in the state House and Senate, as well as Gov. Ed Rendell.

The Greater Philadelphia Venture Group sent a letter of support for the program to legislators around the state. Pittsburgh venture capital firms Draper Triangle Ventures, Downtown, and Birchmere Ventures, North Side, both said they are enthusiastic about it.

"It is very likely to be passed as part of the stimulus package," said Mr. Overmoyer.

While development of the economic stimulus package began early in 2003, the venture capital component emerged in late summer.

Under the New Ventures Investment Guarantee Program, an oversight committee would administer a $250 million fund that would guarantee up to half the investments made in Pennsylvania companies by qualified venture firms. The state would only guarantee a maximum of $75 million of investments per firm, meaning the most it would ever have to pay a firm whose investments didn’t work out would be $37.5 million.

The program further hedges the bet of paying out by limiting the field to venture firms with funds whose performance has been in the top 25 percent of all similar funds formed around the same time period.

"By selecting top-tier funds, it’s everybody’s thought that we won’t have that issue," said Mr. Overmoyer.

No venture capital firm based in Pennsylvania would make the cut. To that end, Mr. Overmoyer said, a companion piece has been proposed. Up to $60 million will be made available to Pennsylvania-based firms or firms with an office in the state and a focus on investing here.

Chuck Dietrick, a Birchmere partner, said the second fund would be an important component, given that so many companies in the state are starved for cash.

Birchmere, currently raising a $150 million to $200 million fund, could receive as much as $20 million from another state venture capital effort, the Pennsylvania Tobacco Settlement Board’s 2002 program to nurture the state’s fledgling biotech industry. That hinges on whether Birchmere raises funds tripling that amount by a March 31 deadline, something a previous awardee failed to accomplish. Translation? Money that could have been pumped into startups has laid dormant for more than a year.

"We’re eager," said Mr. Overmoyer. "We think the national economic picture is showing signs of recovery. Pennsylvania needs to take a stand and leap ahead of its competitor states. The package is something that gives us the ability to do that."

This begs the big question still facing the Rendell administration. When will the economic stimulus package be passed?

"We are optimistic we will come to an agreement with what the package will look like in the near future," Mr. Overmoyer said.