As a California-based venture capital firm continues to put down roots in New Mexico, one of its partners opened up about why it was drawn to the state.
Last month, CerraCap Ventures, an Orange County, California-based venture capital firm that's raising its third, $100 million fund, secured a spot in Albuquerque's Northeast Heights for its first office in New Mexico. Since launching in late 2016, the firm has already established some New Mexico ties, putting investments into and receiving investments from companies and entities in the state.
But what does CerraCap see in the Land of Enchantment that would make the California firm want to establish a physical presence here? According to Ritesh Agarwal, one of CerraCap's partners who helped lead its New Mexico office search, a lot of that potential starts with the labs.
Los Alamos National Laboratory, Sandia National Laboratories and the Air Force Research Laboratory — three national laboratories housed in New Mexico — contain significant amounts of intellectual property (IP) in areas where CerraCap invests, Agarwal told Albuquerque Business First.
"That's the whole game plan for expanding in New Mexico, to go after those IPs," he said. "Because I believe those IPs are worth much, much more value, and they could solve the real-time problems we are facing in cybersecurity and space tech."
Some recent startups to spin out of New Mexico's national laboratories include Advanced hCMOS Systems, an ultrafast imaging company that came out of Sandia National Laboratories, and Hoonify Technologies Inc., a supercomputing company and recently named startup to watch that was also founded by a group of former Sandia National Laboratories scientists.
Agarwal wants to find more companies like hCMOS Systems and Hoonify to invest in and partner with.
"Our thesis is when we make an investment, we don't act like a VC to them," Agarwal said. "We act like a partner and operator.
"Why? Because mostly these are early-stage investments, these are all first-time entrepreneurs," he continued. "First-time entrepreneurs have a lot of energy — they want to conquer the world — but they have a very fuzzy image about where to go. Our past experience gives them that clarity."
But the potential for lab spin-outs isn't all that Agarwal and CerraCap see in New Mexico. Agarwal, who came to the U.S. in 1997 after studying engineering and business in his home country of India, wants to facilitate companies from outside New Mexico setting up satellite offices and building workforces in the Land of Enchantment.
"We see talent, awesome talent, at the right price," Agarwal said. "Not the Bay Area price, the New Mexico price.
"I think we all need to make a conscious effort to go after companies and ask them to open their offices and build their satellite workforce here," he added. "That will inject new blood of entrepreneurs into the New Mexico ecosystem."
Government support for building that ecosystem is different in New Mexico than in other startup hubs in the U.S. like the Bay Area, too, Agarwal said. Places like the Bay Area are almost "too big" for government to have much impact. The State of New Mexico, he said, can more tangibly affect startup opportunities here. CerraCap and America's Frontier Fund, a nonprofit venture firm focusing its investments on "frontier" technologies,have both previously received money from the New Mexico State Investment Council, for example.
But more money is needed to sustain and grow the ecosystem that CerraCap wants to help build, Agarwal said.
"Having startup money is good, but you need to have the growth capital also committed," he said. "Otherwise, these companies will not grow."
As the recent high-profile failures of Silicon Valley Bank and First Republic Bank have forced some founders and investors to rethink how they raise and use money, more people may start considering places outside of established geographic hubs in favor of less pricey alternatives, like New Mexico, Agarwal said.
"That is what I'm trying to [do] here," he said. "Once we say, 'Look, guys, you come here and on the operations side it would be one-tenth of the cost, plus you will have the similar kind of cash available between the government and private sectors,' they will jump on."
What of the Bay Area, then? According to Agarwal, "That ecosystem has pretty much matured."
"This [New Mexico]ecosystem has not even started."
