High risk meets high gain

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By Roger Snodgrass

ALBUQUERQUE – Among the many high points of the 15th annual Technology Ventures Corporation’s (TVC) New Mexico Capital Equity Symposium was the keynote talk Thursday by Stuart Alsop.

“Venture capitalism is about dreams done by people who are mostly insane,” he said. “Banks operate at about 2-4 percent profit; we’re expected to make ridiculous returns.”

The talk on how to realize at least 30-percent returns annually, and perhaps “life-changing-wealth,” wrapped up another season for one of the main seedbeds of New Mexico’s budding entrepreneurial ecosystem.

Last year, investments for TVC-mentored companies leaped by $218 million, one of the reasons that New Mexico is ranked so high in entrepreneurial growth in the nation.

The first venture capital (VC) companies began in 1946 and they have played a significant role in creating innovations in the U.S. market, now a globalized arena.

According to a recent National Academy of Sciences report, “These pioneering VC firms soon discovered that technology-based innovations most consistently yielded the greatest returns.”

In the next few months, TVC will reach the $1 billion milestone in investments since 1993, when Lockheed-Martin took over management of Sandia National Laboratories. The money raised has been mostly for local start-ups that are trying to bring technology out of the national laboratories, including Los Alamos.

“Compared to 15 years ago, it’s incredible,” said TVC President and CEO Serman McCorkle – but compared to the opportunities, he said, “we’re at about 5 percent.”

Alsop is the former editor in chief at InfoWorld, Fortune magazine columnist and general partner in the multi-billion dollar venture capital company, New Enterprise Associates. He has a house in Santa Fe, and is now engaged in his own $75 million start-up funding vehicle, Alsop Louie Partners.

The gadfly, as he calls himself, was happy to share his recent encounters with the jealous gods of capital who determine returns on investment. As he suggested, they are known to shower unconscionable wealth on the few while testing the resilience of the many.

He downsized from a company with $6 billion to a company with a paltry $75 million, because “less is more,” he said. “We want to do things that are inherently cheap; we’re really into greed.”

In context and among fellow business gamblers, this was a funny line – but not without a boulder of truth.

In point of fact, Alsop said, “entrepreneurs that have less than $2 million get creative. They pay themselves less and they pay others less; it makes the companies hyper-efficient.”

As he explained, the formula they came up with for deciding what companies to invest in was that each of the deals – they are aiming for about 16 – must have the promise of returning at least $75 million as the investors’ share.

That means there are more or less 16 chances to make their money back, and they expect pretty good odds to make a lot more.

The only problem is that some Alsop Louie Partners’ investments have done so well that they have succumbed to lucrative buy-outs, highly profitable for themselves and their backers, but premature and short of the stretch goals Alsop and his partner Gilman Louie set for themselves.

So even making $8 million on an early buy-out for the partners on a $2.3 million investment was something of a disappointment.

Still looking for the home run, Alsop wondered, “How do we find real entrepreneurs who want to hit the ball out of the park and build big companies?”

Alsop’s talk followed an afternoon of presentations by 18 entrepreneurial hopefuls, seeking to solve high-value problems. Eight companies had energy-related proposals, five were in the information technology field.

At least three of the companies had strong ties to the local area.

Bob Hockaday, a serial entrepreneur from Los Alamos, introduced his proposal for a new solar technology with the potential to make sun power competitive with conventional power sources.

Knowledge Reef Systems is on its way to commercializing an advanced web-based resource for information-intensive knowledge communities.

Led by Gary Ebersol, a veteran Silicon Valley startup entrepreneur, and the company’s Chief Technical Officer, Marko Rodriguez, a LANL postdoc, the company’s new site will take advantage of next generation web-technology.

The symposium’s biggest project proposed by Herperion Power Generation Inc. is commercializing a compact nuclear power module utilizing a uranium hydride core and invented by LANL scientist Otis Peterson.

Existing shareholders include Los Alamos National Security, LLC and Altira Group, LLC. The current offering is for $30 million and expects to close in the fall, according to Deborah Blackwell

Los Alamos National Bank was the Platinum sponsor for the event. Los Alamos and Sandia national laboratories were gold sponsors. This year’s symposium was held again at the Homewood Suite Hotel in Albuquerque.

Editor’s Note: More on the Los Alamos related companies and technologies, along with this year’s special LANL Showcase from the symposium and the new Los Alamos Venture Acceleration Initiative will be included in Part 2.