Strategy
The New Mexico Opportunity. It’s not surprising New Mexico has a strong history of technology development. Its two national research laboratories, three tier-1 research universities and military research facilities spend more than $4.8 billion in research and development each year. The result is a dense population of scientific and engineering talent, as well as world-class technology.
Today, there’s an increasing number of experienced entrepreneurs, a growing sophistication in the technology transfer process at New Mexico research institutions and an unprecedented number of venture capital firms with offices in New Mexico. Of all these factors, however, seed stage capital remains the greatest need. Most venture firms are interested in investing in companies with a higher degree of maturity. For these companies to reach that point, they require early funding, substantial mentoring and strategic advice. Verge will be successful by providing high-touch, value-added investing at the earliest stages of a company’s life. It’s what New Mexico businesses need and what the Principals have experience in providing.
Key Investment Tactics. Understanding this unique climate and opportunity for investing in New Mexico, Verge will apply the following tactics to maximize the rate of return to investors and to mitigate the associated risks of early-stage investing. These tactics have been developed from the Verge team’s 42 years of combined experience investing in and evaluating companies in New Mexico.
1. Initial investments only at the seed stage: Verge will only make initial investments in portfolio companies at an early stage: the seed or first round. For a smaller amount of invested capital, the Fund can own a much larger share of the company than a mid- or late-stage investor. Because of this, the Principals will have a much greater impact on the business and its strategy.
2. New Mexico investments: Verge will only invest in companies located in New Mexico. This allows the Principals to monitor the portfolio on a continual, real-time basis and provides direct access to the deal flow in the region.
3. Active participation with management: Many early-stage companies have entrepreneurs or inventors with limited or no experience in starting or running a company. That’s why the Verge team will be very active in working with management or, in some cases, serving as management until experienced executives can be recruited to the company. While extremely time-consuming, this “incubation” approach, coupled with the use of Entrepreneurs-in-Residence, will provide the Fund with complete visibility into the operations of the portfolio company, so that issues and problems can be addressed early and quickly.
4. Later-stage investments only in existing portfolio companies: Verge will make later-stage investments only in follow-on rounds of existing portfolio companies as their business models are validated and the risk factors are reduced. The intent is to continue to invest in each round of financing, but increasing amounts of capital will only be committed as portfolio companies show a more certain promise of a liquidity event, such as a sale or IPO that will justify a return commensurate with the increased investment.
5. Technology investments: The Fund’s focus will primarily be on investments in technology businesses including life sciences, manufacturing technologies, optics, semiconductors, software, telecommunications and energy. These are the industries the Principals know best and which represent the bulk of the opportunities into which the Partnership expects to invest.
6. Co-investment and follow-on with experienced investors: The Principals have a network of co-investors with whom they have worked over the years. These investors range from professional venture capital firms to strategic corporate partners to wealthy individual investors. Together, Verge and these investors will share deal flow, due diligence and market knowledge. This cooperation assures the new companies being built are appropriate to receive follow-on funding from one or more of these firms.
7. Leveraging non-equity dollars: The early stage of a new enterprise is the riskiest phase, so optimum use of equity cash is extremely important. The Principals will help arrange non-equity funds for these companies with a variety of sources: bank lines, venture leasing, various federal government loan and grant programs, strategic corporate partner grants, state and local economic development programs, and extended or deferred vendor credits. Although often unused, these are commonly available to the portfolio companies with little or no dilution to the existing shareholders.