VC in New Mexico: Yesterday, Today & Tomorrow (part III)
Third in a five part seriesIII. Venture Capital in New Mexico in the last 10 years
The 1990s were an amazing time for the venture capital industry in the United States. The amount of both deal activity and venture capital investment exploded. But what about New Mexico? There is no way to characterize historical venture activity in New Mexico except as sluggish. New Mexico lags significantly behind other states in our region for number of VC financings (defined for these purposes as New Mexico and its adjoining 5 states). New Mexico is, of course, the smallest state in this six state region, accounting for less than 5% of the population. Unfortunately, we have made up, on average, less than 2% of the venture capital deal activity for the region. The most interesting comparison is with Utah, a state with a population only 25% larger than New Mexico. In 1995, New Mexico had 2 venture financings, and Utah had 6. However, due to a number of factors, including the aggressive support of the state government, the formation of support organizations such as the Utah Information Technology Association, and the creation of the first truly locally-based venture capital firms in the state, Utah took off. At the height of the bubble, 1999, we had 8 financings in New Mexico and Utah had 65. As venture capital financings have come back to Earth, the gap has closed again to about 4 to 1, but we are still trailing far behind.
Perhaps as important as the low number of financings has been the equally low number of “exits,” or liquidity events. In the private equity world, whether professional VC or angel investing, the typical mechanism for investors is to buy stock in a company, gaining a substantial percentage of the overall ownership, adding value to the business as it grows and develops, and then selling it for a lot more than what we paid for it, either through an acquisition to a larger company for cash or stock, or through an Initial Public Offering, or IPO. Very simple: buy low, sell high. Theoretically. These exits, of course, are what really creates wealth (and also increases the number of expensive German cars being sold in a local market). We have had some here in New Mexico, to be sure: the purchase of MicroOptical Devices by Emcore is one of the most publicized, but there have been others. The acquisition of Indigo Medical by Johnson & Johnson, is one example, the recent purchase of MesoFuel by Intelligent Energy of the U.K. is another. Several angel backed or bootstrapped deals have also provided liquidity events for their shareholders and investors: CVI Laser, ProLaw Software and HealthFirst are all examples of technology companies which were founded here, grew up here, and ultimately provided exits. What we have not yet had here is the “big exit.” The Dell IPO, which single-handedly transformed the Austin economy. The creation of a Micron PC in Boise, or a Quantum Hard Drives in Boulder, or WordPerfect in Salt Lake City. We have not had that…yet!
So, is that it? Are we going to always stay in the backseat of this technology revolution? I certainly would not be here in New Mexico if I believed that. Many steps have been taken over the last several years in support of the venture capital industry that are beginning to really pay dividends, and which I believe have us poised for much stronger growth for the future.
To be continued...
