New Mexico State University's Arrowhead Center's innovation fund was among the first three venture funds to receive investments from the State Investment Council's new $20 million “Catalyst Fund.” The venture funds are expected to make investments in New Mexico startup firms. (Courtesy NMSO)
Many cash-strapped New Mexico startups may soon get a critical boost from a state-backed investment program that’s pumping an initial $4.65 million into three local venture funds.
Gov. Susana Martinez announced Tuesday that the state’s new $20 million “Catalyst Fund” is making its first three commitments to investment funds managed by New Mexico State University, and by the Albuquerque-based firms Cottonwood Technology and Tramway Venture Partners. Those organizations will, in turn, match state money dollar-for-dollar, doubling the amount of new cash to become available for local startups seeking seed and early-stage capital.
The Catalyst Fund launched last year with $10 million from the State Investment Council and $5 million each from the U.S. Treasury Department and private investors. It plans to invest in eight to 10 venture funds around the state over the next couple of years, generating a total of $40 million for startups after counting matching funds from Catalyst recipients.
That could provide critical, early-stage support for 50 to 60 companies, Martinez said in a statement.
“New Mexico has the potential to be the next tech-startup capital of the United States,” the governor said. “Through this fund, we’re going to help these companies get off the ground to become the next Apple or Microsoft. And by doing so, all of New Mexico will reap the benefits because we will diversify our economy and create more jobs.”
Sun Mountain Capital, which manages the Catalyst Fund, has been vetting potential fund recipients since last year. More venture firms will receive money in coming months.
The first three investments include $2.5 million for Cottonwood Technology, $1.35 million for Tramway Ventures, and $800,000 for NMSU’s Arrowhead Innovation Fund.
All three demonstrated the investment and management experience needed to effectively deploy capital in startups with compelling products and services, said Sun Mountain Managing Partner Brian Birk. And all three have raised significant private capital, independent of the Catalyst Fund.
That’s critical, not just to meet the dollar-match requirement, but because the Catalyst Fund can only provide up to 40 percent of the total amount raised by a venture fund.
“We’ll provide up to 40 percent of the value of a fund, up to a maximum of $2.8 million,” Birk said. “It’s incumbent on fund managers to raise the rest of their capital from private investors.”
Of the three recipients, Cottonwood is by far the most-established fund. It’s an early-stage investor with $40 million now under management, half of which has already gone to New Mexico companies in recent years. The Catalyst Fund will help boost money available for more startups, said Cottonwood Managing Director David Blivin.
Tramway is a new venture fund formed this year by serial entrepreneurs with extensive experience in New Mexico. To date, it’s raised $2.7 million of a planned $8 million fund that’s focused on life science companies with innovative technology for medical research, diagnostics and healthcare delivery, said Tramway Director Waneta Tuttle.
NMSU, meanwhile, has raised nearly $1.7 million for a new $2 million innovation fund, including $500,000 from the NMSU Foundation. It will invest $50,000 to $150,000 in companies through the Arrowhead Center, which manages all of the university’s technology transfer programs.
Fund managers said Catalyst support will help plug the state’s chronic shortage of seed and early-stage capital. That’s critical for new companies to transverse the “valley of death” — a financial ravine where startups need a small amount of capital to further develop and prove their technologies before larger, institutional investors are willing to step in.
“This can help fill that critical capital gap,” said Arrowhead Director Kathryn Hansen. “We need those early-stage investments to help companies mature and move forward on the path to market.”
Economic Development Secretary Matt Geisel said the Catalyst Fund offers another tool for building the state’s entrepreneurial ecosystem.
“This investment strengthens our commitment to the success of homegrown New Mexico companies and hardworking New Mexico entrepreneurs,” Geisel said.