Venture capitalists fund NM deals

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By Roger Snodgrass

SANTA FE – New initiatives and advanced technology at New Mexico’s national laboratories are playing a role in the state’s entrepreneurial growth, according to panelists at the Coronado Ventures Forum’s annual “State of the Venture Capital Industry” program Thursday.

Brian Birk, a managing partner of Sun Mountain Capital, said he wasn’t sure about the quantity of deals involving laboratory technology lately.

“But qualitatively, they have really paid benefits over the last 3-4 years,” he said.

He credited the reputation of the laboratories for attracting top-tier investors, like Kleiner, Perkins, Caufield and Byers, Oak Capital Group and Draper Fisher Jervitson.

“All that comes back to the labs and the University of New Mexico,” he said.

Another panelist, Stephanie Spong, a principal of Epic Ventures, reported she had spent the morning in presentations at Los Alamos National Laboratory.

“I saw some cool stuff today,” she said.

The thing about intellectual property at the lab, she said, is that there may be something very deep and “worth shaking,” but there is rarely an entrepreneur attached.

“They’re not bad development deals, they’re just underdeveloped,” she said.

Earlier in the forum, she had noted that one of the impediments for New Mexico is the lack of qualified developers. There was also the irony that one of the state’s main attractions is that investors can get in early.

“We just don’t have as many experienced serial entrepreneurs (as places like San Francisco and Massachusetts),” she said. “We don’t have 17 CEO’s to choose from.”

The laboratory is in the midst of negotiating a new entrepreneurial program, LAVA (Los Alamos Venture Acceleration), which will field a full-time resident venture capitalist partnership expected to identify technologies to develop into new businesses.

Spong, who is president of the New Mexico Venture Capital Association, announced that startup investment activity in the state during the second quarter of 2008 was on a pace to meet or exceed last year’s total.

She said private equity and venture capital financing for the first half of the year was $61.8 million, within striking distance of 2007’s record $128.3 million.

A related press release sent out by the association Friday added that the brisk $52 million in investments chalked up in the second quarter included six new Series A deals, early stage funding, averaging $5 million dollars each.

During a free-ranging discussion at the meeting in the Hotel Santa Fe that brought together leading investors and entrepreneurs from around the state, the panelists responded to questions seeking a sharper picture of the venture capital phenomenon in the state.

A third panelist was Greg Kulka, a central figure in the New Mexico State Investment Council as director of private equity and economically targeted investments.

He also manages the state film investment program, which has invested $155 million out of $265 million available.

Recalling the slow process of finding advisors who realized that there were good deals in New Mexico and “not only in Massachusetts and California,” he said, “We just kept replacing advisors until we found one who believed in New Mexico,” he said.

Asked about the current national and international credit and liquidity crisis, Spong said, “Yes, there are some terribly strong storms swirling around out there.”

But in the near term, she added, “Knock on wood.”

Birk said Wall Street’s collapse into fewer investment banks might have more to do with IPOs (initial public offerings), but would also create a “bandwidth problem” for getting heard and might make some of the terms less competitive.

“So I do think there are long-term implications,” he said.

The panelists acknowledged difficulty measuring the effectiveness of the venture capital projects in New Mexico, because most of them are still in the early stages, and lately the time it takes for a start-up to become profitable and to exit via a buy-out or public stock offering has increased from about five years to something longer than seven years.

“In the next few years, you’ll start to see some great exits coming out of New Mexico,” said Spong. In the world of the venture capitalist, that’s where the pay-off comes.

Spong said she and other investors are always looking for themes and clusters among new technology companies. She identified two main “buckets” in New Mexico – a big bucket in “cleantech,” which includes renewable energy, energy efficiency and green construction, and another in life sciences and healthcare.

The next meeting of the forum in December is expected to be on the subject of cleantech.