VC in New Mexico: Yesterday, Today & Tomorrow (part I)
I. History of the VC IndustryThe past 10 years have seen a remarkable transformation in the American economy, as we have truly moved from an industrialized society to an information and knowledge society. Do not get me wrong; I am not going to dazzle you with a lot of new-era words about how our old way of life is dead, and how somehow we are moving to an environment where we will never manufacturing anything again and where whatever we order on eBay or Amazon will magically come out of our printer (I should say, however, that if anyone knows how to make a pizza magically appear from my printer, come talk to me, because that would be a good investment!). I will be referencing the tech bubble of the late 1990s quite a bit, and if there is one thing that the bubble did, it was to overhype all things technology. Nonetheless, there remains no question that technology has changed the way all of us do business. The growth of the technology industry, of course, like the growth of the industrial industries before it, and the growth of the railroads before that, all depended upon capital. It all depended upon capital. But where railroads and manufacturing plants had very high capital costs for infrastructure, once that infrastructure was built, they could start making money almost immediately. The technology industry is unique in American business because of the tremendous amount of time – and money – required just to make the widget work. This change – infrastructure PLUS development cost – required a new approach to investment, one that was more patient then ever before, more daring than ever before, and yes, even greedier than ever before: venture capital.
Venture capital did not, of course, start with the tech explosion of the last ten years, or even in the last twenty. Modern venture capital really began just after World War II, when the same families that had become rich in old line industries, names like Carnegie and Morgan, Mellon & Rockefeller, decided that it was time to tame the new frontiers of innovation and business. Arguably, the first formal VC firm was a group called Advanced Research and Development, or AR&D, which was run by “General” Georges Doroit, a professor at the Harvard Business School, who funded companies such as Digital Equipment Corporation. Digital has an Albuquerque connection, of course; its old factory has become the very successful @25 development. But while the early roots of venture capital may have been on the East coast, it was in the more relaxed environment of the West coast, in the fertile valley south of San Francisco, where technology and venture capital most flourished, and ultimately grew into household names. Here was where Intel was born, where Apple grew, and where a $5 million investment in eBay became more than $4 billion by mid-1999 (and is worth more today). It is also where a $150 million investment in a company called WebVan by the same venture capital firm, Benchmark Capital turned into $0 – a stark reminder than no one – no one – gets it right all of the time. So, as is the case with most industries, as the venture capital industry became more mature, enterprising VCs moved out to newer, emerging markets. These were centers of technological excellence and business acumen in their own right, places like: Seattle, Washington; Austin, Texas; or the Research Triangle Park in North Carolina. There were, also, early activities here in New Mexico. I do not know much about the early efforts at venture capital here in the State, so I will not presume to analyze them. I do know that these efforts did not produce the fruits of success as had been hoped, and so the venture capital industry remained fairly dormant until the mid-1990s.
To be continued...
