Minutes of the Regular Meeting of NMSBIC, June 18, 2012
A regular meeting of the New Mexico Small Business Investment Corporation was called to order on this date at 8:00 a.m. in the conference room of the WESST Enterprise Center, 609 Broadway Blvd., N.E., Albuquerque, New Mexico.
A quorum was present:
Members Present:
Mr. Joseph H. Badal, Chair
Mr. Sam Cobb [by telephone]
Mr. Alan Fowler, Secretary/Treasurer
Mr. Lupe Garcia
Ms. Roxanna Meyers, Vice Chair
Mr. Clarence L. Smith [designee of Hon. James Lewis, State Treasurer][by telephone; signing off at 9:00 a.m.]
Ms. Launa Waller [by telephone]
Members Excused: None
Legal Counsel to Board: Mr. Randy McDonald
Financial Advisor to Board: Mr. Russell Cummins; Mr. Paul Goblet, assisting Mr. Cummins
Recording Secretary: Ms. Judith Beatty
Guests Present: None
APPROVAL OF AGENDA
Mr. Fowler moved for approval of the Agenda, as published. Ms. Meyers seconded the motion, which passed unanimously by voice vote.
REVIEW AND ACCEPTANCE OF BOARD MINUTES: May 21, 2012
Mr. Cobb moved approval of the May 21 Minutes, as submitted. Mr. Garcia seconded the motion, which passed unanimously by voice vote.
REVIEW AND ACCEPTANCE OF FINANCIAL REPORT
Mr. Fowler reviewed the May financials.
Mr. Cummins said new monthly operating expenses going forward will be: dedicated phone and fax numbers at $62; document storage (Iron Mountain) at $75; and a P.O. box at $3.
Mr. Fowler moved to accept these changes. Ms. Meyers seconded the motion, which passed unanimously by voice vote.
Mr. Cummins noted that, although actual interest income from The Loan Fund for May is $14,737, it is reflected as zero for the month because it is being accrued on a quarterly basis. In discussion with Ms. Brescia, she has recommended switching to a monthly accrual beginning on July 1 in order to better reflect actual numbers for each month.
Chairman Badal stated that he would meet with Mr. Cummins and Mr. Goblet toward the end of June to hear their thoughts and recommendations around an appropriate date to end their co-consulting arrangement.
Mr. Garcia moved acceptance of the May financial report. Mr. Smith seconded the motion, which passed unanimously by voice vote.
REVIEW AND ACCEPTANCE OF 2012/13 BUDGET
Mr. Fowler moved to accept the 2012-13 budget, as presented. Ms. Meyers seconded the motion, which passed unanimously by voice vote.
EXECUTIVE DIRECTOR/INVESTMENT ADVISOR REPORT
Mr. Cummins noted that Paul Goblet has acted as representative for the NMSBIC on each equity fund advisory committee (referred to by Verge Fund as the Conflict of Interest Committee), and asked the Board to approve him as Mr. Goblet’s replacement.
Mr. McDonald clarified that, although in some cases this representation is spelled out in the partnership agreement, and in others it is the GP that appoints members to the advisory committee, the NMSBIC side letters all state that the NMSBIC shall have representation on such committees.
Mr. Fowler moved that Mr. Cummins replace Mr. Goblet on these committees. Ms. Meyers seconded the motion.
Chair Badal stressed that, while most of the time actions taken by the advisory committees are straightforward, where there is a substantive change being made (for instance, changing the investment policy), the NMSBIC Board should weigh in beforehand.
The motion passed unanimously by voice vote.
[This agenda item is continued on page 4 of minutes.]
APPROVAL TO APPOINT EXECUTIVE DIRECTOR/INVESTMENT ADVISOR TO EXECUTE AGREEMENTS WITH TOTAL COMMITMENT LESS THAN $1,500 UPON WRITTEN AUTHORIZATION FROM BOARD CHAIR
Mr. Cummins asked the Board to authorize him to execute agreements for a total commitment of up to $1,500 for phone service, fax service, a post office box, and things of that nature. In each instance, he would first ask the Chairman to send him an email authorizing him to do this.
Mr. Garcia so moved. Mr. Fowler seconded the motion, which passed unanimously by voice vote.
HOBBS BOARD MEETING AND PUBLIC PRESENTATION – SUGGESTED DATES AUGUST 13 OR 27
Board members agreed on August 13, and discussed arrangements, scheduling, and possible activities.
[Mr. Smith signed off from the proceedings.]
EXECUTIVE DIRECTOR/INVESTMENT ADVISOR REPORT (Cont’d)
Mr. Cummins presented highlights from his advisor’s report, noting that he and Mr. Goblet will have met with all of the NMSBIC’s lending partners and equity by this afternoon.
Accion
In discussion on Accion’s April report reflecting a net loan loss to the NMSBIC of $400,000, Mr. Goblet remarked that the participation agreement with Accion is structured such that it can never generate a positive return, given the client base and Accion’s role as a deliverer of capital to that particular client base.
Chairman Badal commented that the Board has had a number of discussions about the NMSBIC’s role going forward, and part of the problem is it can’t be all things to all people. He suggested that the Board set aside time at an upcoming meeting to discuss what the members have learned in the past year and where the organization should go from here.
Noting that Mr. Cummins’ report states that Accion Executive Director Yatskowitz is concerned about the SIC’s recommendations regarding the NMSBIC, Chairman Badal said he would encourage Mr. Cummins to be fairly firm with NMSBIC partners and potential partners that those were only recommendations, and that the NMSBIC does not report to the SIC.
Chairman Badal asked Mr. Cummins to provide a list of who is making contributions to Accion, to assist the NMSBIC Board in determining what role it may want to play in the future. Of particular interest would be Accion’s relationship with the commercial banking sector and what the status of those relationships is at the current time.
The Loan Fund
Mr. Cummins reported that he attended a Loan Fund staff meeting on June 7, and was impressed by the thorough discussion and their understanding of the organization’s cash position and what their cash flow looks like. He noted that Director Leroy Pacheco indicated to him that he likes to have 12 months’ worth of operating expenses in cash, which Mr. Cummins feels is conservative and a good business practice.
NM Mezzanine Fund
Mr. Cummins said he had a good meeting with Mike Doolittle, who indicated that NMMF has some loans in the pipeline that may be added to their portfolio.
New Mexico Community Capital
Mr. Cummins reported that he, Mr. Goblet and Mr. Badal attended the NMCC Fund I annual meeting on June 7 and went through a review of their equity program. Two portfolio companies made presentations. NMCC is projecting that the NMSBIC’s current investment value of 0.86x gross investment will increase to 3.65x in 2015.
Mr. Cummins said NMCC had their first positive exit, which should return about $75,000 to the NMSBIC per quarter starting in the second half of 2012.
Chairman Badal commented that the two companies presenting at the NMCC meeting were extremely impressive.
Chairman Badal also noted that some potentially successful deals wind up bringing in secondary and tertiary level investment deals, which dilutes NMSBIC’s position. The NMSBIC in those cases ends up taking a huge risk, and unless it has a huge multiple associated with it, it will be very difficult for the NMSBIC to get a big return. He added, though, that the NMSBIC’s mission isn’t necessarily the big return – it’s the ability to start something that creates jobs and helps economic development. On that note, it might be better for the NMSBIC to allow for the smaller return with the goal of getting its investment back so it can be redeployed, in effect avoiding a high risk loss situation. He asked Board members to consider this for future discussion.
Flywheel Ventures
Mr. Cummins stated that he and Mr. Goblet met with Kim Sanchez Rael and Trevor Loy, who provided a history of Flywheel and noted that Flywheel clients have provided 158 jobs in New Mexico with an annual payroll of $9.6 million. The New Mexico Gap Fund has invested in a slightly more mature company that is expected to generate a positive return with a much shorter J-curve timeline.
Verge Fund
Mr. Cummins reported that he and Mr. Goblet met with Verge representatives and reviewed the three funds (Verge 1, 1.5 and 2). The eight partners are highly involved in the companies where capital is invested; and the principals are part of the management of 11 of the 16 active companies. He said their goals are to get a 2x return for the first two funds and 2.5x for Verge 2.
Mesa Capital Partners
Mr. Cummins reported that he and Mr. Goblet met with Les Matthews and Moritz Schlenzig on June 14. Mesa plans to close NM Growth Fund I as of November 30 and around that time will propose to offer New Mexico Broadband Holdings (NMBH), which is still active, to the LPs. The NMSBIC’s share would be about $17,000. He said Mesa has indicated that if NMBH is successful in getting up to $14 million in funding for providing VOIP to rural areas of New Mexico, they think the economics of continued ownership in NMBH may make sense – they will know the answer in September. In that case, the NMSBIC Board will be asked to make a decision in October about whether or not to pay the $17,000.
Chairman Badal recommended that the Board consider consulting someone with expertise in this area before committing the $17,000, should the prospect arise.
Mr. Cummins said Mesa is planning to close NM Growth Fund II and is recommending a one-year extension to allow for liquidation of the remaining assets – a vacant chile processing plant in Deming, an equipment lease, and ownership interest in a food distribution company. He said the current market value in Fund II is about $1 million, and the question is what their value of those assets will be at June 30 and whether the NMSBIC should consider writing those down.
Other transition items
Mr. Cummins stated that he and Mr. Goblet met with Holly Eakes of The Holly Company on June 13 and discussed, among other things, the NMSBIC’s planned reduction from $3,000 a month to $1,500 a month in FY 2012-13. Ms. Eakes would like to make a presentation to the Board at some point before the end of the calendar year.
Mr. Cummins reported that he met with Dee Brescia on June 11 and reviewed various accounting reports, histories and analytical report.
Mr. Cummins thanked Mr. Goblet for the considerable time and energy he has spent in assisting him through this transition.
LOCAL GOVERNMENT INVESTMENT POOL (LGIP)
- Approval to Update Authorized Signors
- Recommendation/Approval to close account
Mr. Cummins asked for approval to update the authorized signors to reflect Joe Badal, Roxanna Meyers and Alan Fowler.
Ms. Meyers moved approval to update the signature cards. Mr. Fowler seconded the motion, which passed unanimously by voice vote.
Ms. Meyers moved approval to close the NMSBIC’s LGIP account. Mr. Fowler seconded the motion, which passed unanimously by voice vote.
DISCUSSION OF HD3 PILOT PROGRAM PROPOSAL
[Postponed from May 21 meeting.]
Chairman Badal commented that, while the NMSBIC’s mission statement does not indicate anywhere that it should make unsecured lines of credit available, the Board has said it will consider a reasoned equity investment if it makes sense.
Following discussion, there was consensus that Mr. Cummins should meet with HD3 representatives to gather further information, to clarify the Board’s position, and to convey to them that the NMSBIC will not subsidize an organization’s operating expenses.
RENEWAL OF D&O INSURANCE POLICY
Mr. McDonald stated that he would renew the D&O policy and report back at the next meeting.
CHAIRMAN’S COMMENTS
Chairman Badal stated that Mr. Goblet has made the transition extremely easy, and he appreciated it.
ADJOURNMENT
Its business completed, the NMSBIC Board adjourned the meeting at approximately 10:15 a.m.