New Mexico’s new state-backed Catalyst Fund is ready to make its first capital commitments to local micro funds that invest in startup companies around the state.
Santa Fe-based Sun Mountain Capital, which is managing the new “fund of funds” for the State Investment Council, closed this week on $15 million in commitments from the SIC and the U.S. Treasury Department, said Sun Mountain managing partner Brian Birk.
Sun Mountain must still raise another $5 million from private investors to reach the fund-of-fund’s $20 million target. But with the state and Treasury money now in the bank, the Catalyst Fund can immediately begin investing in small, New Mexico-based venture funds that want to provide seed and early-stage capital to startups.
“We’ll send out a request for information on June 1 to get parties around the state interested in learning more and potentially applying for investment,” Birk said. “I believe we’ll have the first funds deployed by the end of June or early July. There are a number of firms already interested and ready to go.”
The SIC approved $10 million for the new program last January, after the Treasury Department approved a New Mexico request to “repurpose” $5 million from a pool of federal stimulus dollars made available a few years ago. The Treasury funds had been earmarked for low-cost loans to small businesses in New Mexico, but with the repurposing, that money can now be used for venture investment in small companies.
The state Economic Development Department, which is overseeing the Treasury Department’s $5 million commitment, completed the legal process for deploying the funds this week. And that paved the way for the SIC to sign final contracts with Sun Mountain, said SIC spokesman Charles Wollmann.
“Sun Mountain will now work on raising $5 million more from institutional investors to reach the $20 million target set by the SIC,” Wollmann said. “That will come from institutional investors in New Mexico, such as endowments, foundations and other entities like health care groups or energy companies.”
For micro funds to receive investments from the Catalyst Fund, they must commit an equal amount in matching dollars, meaning at least $40 million in venture capital, and possibly more, could become available to new companies around the state.
“The micro funds will invest directly in companies,” Wollmann said. “In the end, dozens of startups will receive funding over time.”
While micro funds must match Catalyst investments on at least a dollar-for-dollar basis, Sun Mountain will seek fund managers who can match SIC contributions at higher levels to make even more money available, Birk said.
“In addition, we’ll seek fund managers who can provide more than just investment capital,” Birk said. “We want them to provide hands-on assistance to fledgling startups to help them build their companies.”
It could take two or three years for Sun Mountain to deploy the full $20 million, but some micro funds will likely begin investing in companies by late summer or fall, Birk said.
The Catalyst Fund is part of the New Mexico Private Equity Program, through which the SIC can invest up to 9 percent of the state’s $4.5 billion Severance Tax Permanent Fund into venture financing in New Mexico. The SIC, with strong support from Gov. Susana Martinez, created the Catalyst Fund to support the burgeoning startup movement, which has gained momentum as business accelerator and incubator programs emerge around the state.
“I strongly believe that New Mexico has the potential to be a startup hub,” said Martinez in an email to the Journal. “With this initiative, we will help our aspiring job creators get the funds they need to bring their ideas from the drawing board to the marketplace.”