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  • 1. Increasing Business Starts in New Mexico Prepared for the McCune Charitable Foundation Chuck Wellborn Wellborn Strategies LLC December 2002 1. Governmental bodies in New Mexico should diversify their economic development strategies. Economic development policy should be directed towards both industrial recruitment where that strategy is suitable and assistance and encouragement to new business starts and existing small businesses in all parts of New Mexico • Providing marketing support and measured, appropriate incentives for industrial recruitment is a legitimate strategy for some communities  but this strategy is not as suitable for some communities as it is for others  it should be complemented by programs to increase the number of business starts all over New Mexico: successful technology startups where that is possible and microenterprises throughout the strategy • Many states around the country have successfully implemented a similarly diverse strategy  programs to help microenterprise such as those North Carolina instituted in 1988 have shown solid success  there are many sources of federal and foundation support for a business starts strategy, both for capital and for infrastructure • A more diversified approach to economic development  enhances the overall prospects for job creation success  offers proponents of economic development the opportunity to attract new allies in the overall economic development effort including those who now may feel economic development exists primarily for the benefit of a few 2. A Two Pronged Effort. Essentially, there are two facets to an effort to increase business starts in NM • Technology startups. Encouraging more startup technology companies in areas that can support them such as Albuquerque, Los Alamos, Santa Fe and Las Cruces  National Venture Capital Association data shows that startups in New Mexico attract less venture capital than virtually any other state
  • 2.  Arizona, Utah, Colorado and Texas all have experienced significant venture company investment since 1995 despite their lack of national labs like SNL and LANL. Even Nevada has attracted more venture capital investment than NM  Efforts to increase available capital are not enough, capital readiness is still a major challenge  The technology commercialization effort would have greater chances for success if driven by a business-oriented, rather than government- oriented, effort: greater measurable success, less press release fluff • Microenterprise. Fostering more successful micro and small businesses in New Mexico’s rural and low-income areas  Efforts to relocate companies to most rural and low-income areas are not realistic  Encouraging new business starts has much greater chance for improving the economy in these areas  A new business with a potential for 3-5 jobs is meaningful in Albuquerque’s South Valley, T or C or Mora, if not in Albuquerque 3. Business Assistance Landscape. The New Mexico landscape for assistance to new business starts: • Broadly defined, there are three types of new or early-stage businesses:  Microenterprises  Technology Startups  Community Development Venture Capital prospects* *A new and popular economic development concept involves venture capital- like investments in companies capable of producing a double-bottom line: both net profit and social return, such as jobs for low-income persons, businesses that produce a needed product or service in low-income area and so forth. CDVC is a capital mechanism that is ripe for exploration in New Mexico • In each of the types of companies above, the business assistance effort has basically two components:  Access to Capital  Training and Technical Assistance (training generally refers to group training while technical assistance is typically one on one) • For Microenterprises in NM, these needs are now addressed as follows: Capital Microloan/alternative loan funds, such as
  • 3.  New Mexico Community Development Loan Fund  ACCION  CDBG loan funds – cities and counties  WESSTcorp  NCNM Economic Development District Loan Funds  SBA direct loan and loan guarantee programs – cities  Dept. of Agriculture loan programs  NWNM Enterprise Fund Training and Technical Assistance  Small Business Development Centers  Incubators  SCORE  Microlenders, in varying degrees  Community Development Corporations  NxLevel Business Training  Regional Economic Development Organizations • For Technology Startups in NM, these needs are now addressed as follows: Capital Seed Capital:  Personal credit of founders  Family and Friends  Individual Investors  Angel Investor Groups, such as NM Private Investors Venture capital financing:  Venture capital funds (esp. those with NM offices and who are funded by State Investment Council) Training and Technical Assistance • University business school curriculum, management development and intern programs • Incubators (Santa Fe Business Incubator and Farmington incubator are recent models) • Investor/Mentors – private individuals • Technology Ventures Corporation (through Equity Capital Symposium) • Science & Technology Corporation @ UNM (only for startups based on UNM technology) • For Community Development Venture Capital companies, there would be the following capital resources:
  • 4. Capital • Community Development Venture Capital Funds • Banks Training and Technical Assistance • Existing programs described above • Mentoring typical of venture capital investors o Intimate involvement in decision-making o Highly selective approval of management o Establishment of firm milestones 4. Recommendations for Action General • Encourage more governmental support of a diversified economic development strategy • Encourage additional governmental support of business incubators following best practices • Encourage broadening the authority and increasing the funding of the NMSBIC to permit more alternative lending and seed capital funds Microenterprise • Enable the creation of a statewide microenterprise network of providers of microenterprise services that would  Support, not direct, existing and new microenterprise service providers  Serve as a clearinghouse of information on government and foundation programs of financial assistance to providers  Allow providers to identify best practices in lending and business assistance  Help identify gaps and overlaps in services statewide  Allow providers to coordinate training programs for provider staff  Permit improvements in overall microenterprise data collection by providers  Provide a vehicle for advocacy of microenterprise as an economic development strategy in New Mexico Technology Startups • Enable the creation of a statewide technology commercialization network composed of representatives of all of the organizations and groups that advance technology commercialization and/or technology- based economic development that would
  • 5.  serve as a clearinghouse of information on programs of assistance to startups  identify best practices in capital access, mentoring and other business assistance to startup companies  identify gaps and overlaps in services  coordinate training programs for startup managers  improve overall technology commercialization data collection  advocate for technology-based economic development generally • Encourage development of programs to provide seed capital through use of Severance Tax Permanent Fund monies  Existing efforts by NMSBIC in this area appear workable • Develop additional programs of assistance to existing or proposed managers of technology startups  Examples: incubators, training programs and mentor programs • Require state research universities to substantially increase financial and other commitments to support of their tech transfer activities • Increased state support for endowed chairs, incubators, research parks and highly promising research programs selected through a competitive process Community Development Venture Capital • Encourage the creation of one or more statewide Community Development Venture Capital Funds  Encourage changes in statutes to permit $10 million investment from the Severance Tax Permanent Fund in CDVCs  Establish process whereby applications for investment will be received and reviewed competitively similar to how recipients of venture capital funds are considered for investment by the Private Equity Investment Advisory Committee of the State Investment Council  Require that managers of such funds have substantial experience in managing venture capital investments similar to the requirements for managers of more typical venture capital funds