VC in New Mexico: Yesterday, Today & Tomorrow (part IV)
Fourth in a five part seriesIV. Venture Capital in New Mexico today
The venture capital industry in New Mexico today is markedly different than even a few short years ago. When I moved back to New Mexico to open the office for Murphree Venture Partners in the fall of 1997, there were only two venture capital firms in the state, and only one interested in investing locally (interestingly, that one firm had its partner move out of the state three years ago). Today, there are 15 firms that have either an office in New Mexico or a stated desire to invest in companies here in New Mexico. The number of VC firms in New Mexico has more than doubled in the last three years alone. Doubled – during the post-bubble crash years of 2001 to 2003. Along with that increased presence has come increased deal activity. Both 2002 & 2003 saw effectively the same number of deals as in the peak bubble years of 1999 & 2000. 2005 was a banner year by all accounts – $140 million in 17 financings, doubling the total from 2004. Our deal activity remains small compared to the other states in our region, but it is definitely growing. It is a great time to be in venture capital in New Mexico.
Why has this occurred? Has the VC industry suddenly come to our senses and realized that NM is the place to be? There is some of that. As the bubble burst, and deal flow dried up, VCs began to look to new markets, and NM was unexplored territory to most. However, as is so often the case, the main reason is more obvious: they followed the money. In 1994, at the urging of the economic development community, including many of you in this room, the State Legislature passed legislation allowing the State Investment Council to invest a portion of the Severance Tax Permanent Fund into “New Mexico Venture Capital Funds.” The original law brought on only one taker, and so it was modified in 1997 (it was somewhat dramatically overhauled in 2003, but I will get to that). New Mexico Venture Capital Funds are VC firms that agree to (1) open an office in New Mexico, (2) staff it with a full-time investment professional with three years experience, and (3) invest or “cause to be invested” an equivalent amount in the State as what they receive from the State Investment Council. Of the 15 firms I mentioned before, 12 have received state funding. Make no mistake, the State Investment Council’s ability and willingness to invest in venture capital firms that would make a commitment to New Mexico, particularly in the economic downturn of the last few years, has been a significant factor in bringing so many VC firms to New Mexico.
Something else extremely remarkable has happened, and this may be the best indicator of all. This year, in 2004, for the very first time, we now have venture firms which not only include New Mexico as part of their core investing strategy, but which have their headquarters here as well. True New Mexico Venture Capital Firms. Investment professionals who have experience in New Mexico; entrepreneurs and operators who have built successful companies in New Mexico. This is a significant moment in the development of the private equity industry in the state.
A state-funded co-investment fund; 15+ venture firms in the state; local venture firms focused on this market; a marked increase in deal activity. All in all, the prospects look strong for New Mexico. There is, however, always more that we can do…
To be concluded...
