Fledgling firm helps launch NM business

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Economy > Cottonwood Fund provides seed capital to keep startups in region

By Arin McKenna

As David Blivin and his wife Jamai were considering moving to New Mexico to be near Jamai’s family, Blivin met Los Alamos National Bank CEO Bill Enloe and Los Alamos Commerce and Development Corporation Executive Director Kevin Holsapple. When Enloe and Holsapple learned of Blivin’s previous career in venture capital, they suggested there might be a niche he could fill.

“Capital is always an issue in New Mexico with technology businesses and Dave focuses on startups, which is always the most difficult stage to get funded because of the higher risk,” Enloe said. “With very few funds in the area, we felt this type of approach would be a success. There is not much competition and not a lot of companies getting funded.”

Blivin did some research and agreed that a void existed for venture capital firms dedicated to tech commercialization within the Southwest region. Those with ideas ripe for product development generally move to other parts of the country to be near capital resources.

LANB and the LACDC invested in Blivin’s own startup, the Cottonwood Technology Group, while he provided the sweat equity to build the company.

With CTG, Blivin focused on creating the “ecosystem” needed to enhance tech commercialization success, simultaneously raising money for the Cottonwood Technology Fund to finance the projects.

CTG’s efforts include generating interest in New Mexico technologies, through mechanisms such as an annual Global New Energy Summit, which brings together key people in industry and government to consider New Mexico’s new energy developments.

“One of the things that Cottonwood recognized is that there needed to be more knowledge outside of New Mexico about exciting things happening within New Mexico in the realm of energy technologies,” Holsapple said. “So it’s really a brand-building or promotional thing that’s attempting to put us on the map with people who matter in the world of energy technology as a place where there’s more going on than just at the federal laboratories.”

Blivin also helped create the New Mexico Technology Council, which focuses on policy.

“It’s one of the more successful efforts in bringing together the leadership of New Mexico universities and the labs on the subject of entrepreneurial development in the technology realm and, in a policy sense, what kinds of things should be considered to improve that environment and make things easier,” Holsapple said.

The council is currently working on legislation such as options for supporting tech maturation–bringing a scientific idea to the level of demonstrating commercial potential. It is also working with the legislature and governor’s office on other ideas that would help retain and build companies in New Mexico.

CTG is also establishing a social networking platform similar to Facebook that focuses on connecting businesses.

“So we’re doing a number of things that are related to our whole ecosystem,” Blivin said.

All those things set the stage for the success of the Cottonwood Technology Fund. Blivin stresses the difference between venture capital funds such as CTF and angel communities.

“We’re investing in what I call hard-science related companies, companies with real intellectual property and a defensible, sustainable advantage,” Blivin said. “So they have to deliver a real, workable product of some sort, and you can’t do that for a few hundred thousand in most cases.”

Blivin said that angel communities usually invest $150,000 to $200,000, suitable for startups such as software companies. The types of companies CTG invests in require $2 million to $3 million in seed money to be viable.

“That $2 million-$3 million is really what you need to recruit management and to get enough time to really hit an inflection point of value for the company, which simply means landing the first customer and demonstrating the technology on a commercial scale,” Blivin said.

Blivin reviews approximately 200 ideas a year, but few are at the right stage of development, are located in the Southwest region and offer the right type of product. Of the 50 or so viable ideas, fewer still meet CTF’s stringent criteria of being a product capable of “disrupting” the market.

“Most technology that we see is what would be thought of as an incremental improvement to what’s already in the market. Like if you take your cell phone: first you had cell phones, then you added the ability to do text, then you added the ability to take a picture, then you’ve got touch screen, and play music. So each one of those is a better version of what’s already in the market. They’re a little faster, a little cheaper, depending on the technology you’re talking about,” Blivin said.

“But every once in a while there will be an inventor who will envision an approach that’s different than the historical approach, and, importantly, is significantly better. And so that’s the kind of ideas we’re looking for, the ones where maybe you’re going to jump off the curb and potentially redefine the industry in terms of how they make product or how the products work.”

Of the eight companies CTG has backed so far, the most successful is Skorpios, the first company to successfully make optical components using silicon. That innovation reduces cost by 90 percent, doubles performance and uses less power.

“We put in put in $2 million in partnership with Sun Mountain Capital, which is New Mexico’s co-investment fund, and a year later they raised $20 million, and most of that came from their customers,” Blivin said.

Of the companies CTF has funded so far, only one failed to meet its milestones and was shut down. Most of the companies are creating products of international significance and are well on their way to the first stages of success: creating customer acceptance and market adoption.

That is exactly where the company expects to be at this stage. CTF is less than three years old. It takes an average of five years to bring the companies to the point where they can be sold or offered for public option, when investors start seeing a return on their money.

Enloe and Holsapple are both pleased with the company’s success to date.

“People like Dave Blivin are important to the entrepreneurial environment of the state,” Holsapple said.

Enloe especially likes that investors can choose which companies to invest in and how much to invest, an option few firms offer.

Blivin is also enthused with CTF’s progress. He is upbeat about being to be able to look at new ideas and meet creative people every day while making a contribution to his adopted home.

“My goal is to build some meaningful companies in New Mexico, based on New Mexico-created technologies, and employing, over time, thousands of people because we were able to keep these ideas here,” Blivin said. “In almost every case where we’ve invested in a New Mexico company, that company would not be in New Mexico if it wasn’t for Cottonwood Technology Group.”