Council Adds $15 Million On Top of Capital Fund

Gamblers call it “doubling down” — doubling your bet on the same card.

State officials may be doing just that.

The State Investment Council today is expected to approve a plan to invest $15 million directly into a start-up that wants to take over the Philips Semiconductor plant in Albuquerque. In return, the state will become a part-owner.

The “doubling down” comes from the fact the state also has invested $15 million in a venture capital fund that is one of the private investors in the start-up project, called Mesa Semiconductor.

In the July 10 announcement of the state’s plans to invest in Mesa, economic development officials said the Anila Fund of Palo Alto, Calif., and other private investors also would put $15 million into the project.

State officials didn’t mention that the state already had committed to a $15 million investment in Anila. That decision was made in March.

As a result, the state is enabling a $30 million stake in the new venture.

“We may make (an investment) directly and one via a fund,” said deputy state investment officer Deborah Gallegos. “There’s not a problem in doing that.”

Mesa Semiconductor is being formed as a management buyout of the Philips plant, which is scheduled to close by the end of the year. The buyout is expected to save 300 tech jobs.

The Journal could not confirm whether the Anila Fund was using its $15 million in state money to fund its investment in Mesa Semiconductor.

Moses Joseph, general manager for Anila, could not be reached for comment.

A second contact at Anila, New Mexico native Mike Pogue, said he only had a “loose affiliation” with the fund. He said he could not say where Anila was getting its $15 million for the Mesa investment.

“The idea that the state is taking on the role of a venture capitalist and is trying to find companies and fund them, that’s highly unusual,” said Mark Heesen, president of the National Venture Capital Association in Arlington, Va.

There are only about 850 venture capital firms in the country because it’s “long and difficult work,” he explained.

It is also unusual for venture capitalists to invest in a management buyout of a company, he said.

The good news for companies in New Mexico, Heesen said, is the state appears to be very liberal in its investment decisions.

State officials said they are recommending funding for three of the 30 companies seriously studied for investment.

That’s “a high hit rate,” Heesen said.

“If I were an entrepreneur, I would think I had a pretty good shot (in New Mexico),” Heesen said.

Funded own deal

The Mesa deal came through the Economic Development Department, said Greg Kulka, director of private equity investments for the State Investment Council.

The department was helping Philips management find a way to achieve a buyout of the Albuquerque plant.

“As we looked at the situation, we thought there was potential there,” Kulka said.

The Anila Fund was already involved with the management team at the time, he said.

“We ultimately funded our own deal and negotiated with Philips directly,” Kulka said.

When the state invests in a venture capital fund, it does not control how the money is invested. The only state requirements are:

* The fund has a representative in New Mexico.

* The fund must arrange for the same amount of money to be invested in New Mexico companies.

The Legislature gave new authority this year to the State Investment Council to invest directly in private companies, as well as through venture capital funds.

The State Investment Council staff is recommending $29 million be given this month to three start-ups.

In addition to the $15 million for Mesa, $10 million may go to jet maker Eclipse Aviation in Albuquerque and $4 million to Minneapolis-based tech firm PowerWAN.

The Anila Fund was instrumental in persuading the state to invest in PowerWAN, which hopes to open a manufacturing operation in New Mexico that will employ 15 people.

“Anila came to us and said they would be willing to move this company to New Mexico if we would co-invest,” Kulka said. “We looked at their due diligence and performed our own. We concluded there was great potential for return.”