New Mexico’s solar resources, geothermal features and nuclear know-how attract many climate tech startups, and the venture capitalists who back them
If that’s not enough, there’s also the state’s $67 billion State Investment Council, which in recent years has grown rapidly into the second-largest sovereign wealth fund among US states.
With a new investment policy, New Mexico’s SIC has become an active investor in climate fund managers such as Lowercarbon Capital, DCVC and Lightspeed Venture Partners. All told, the SIC’s strategic venture capital program has deployed $1.7 billion in the past three years – $1 billion in the last six months alone.
A $300 million commitment to Lowercarbon, for example, helped convince a hot nuclear startup, Pacific Fusion, to locate a research and development facility in Albuquerque. Lowercarbon, along with DCVC and Lightspeed, are investors in Pacific Fusion, which said the facility represents a long-term capital investment of $1 billion and will create 200 jobs.
“If we were offering (Lowercarbon) $5 million to invest, they would have responded very differently than if we offered them, as we did, $300 million to invest,” said Bruce Brown, who in October was named to head the SIC’s new office of strategic climate initiatives. “And somebody like Lowercarbon knows that the more of this they bring, the more capital we’ll have to give to them to invest for us.”
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The fund investments include understandings that managers will find matching investments for New Mexico ventures.
“We don’t have some sort of binding agreement. It’s just an understanding that they’ve made a commitment to find investments in New Mexico,” Brown said on the latest episode of ImpactAlpha’s Agents of Impact podcast. “And our commitment to them is based in part on our belief that they can make investments in New Mexico.”
Gun shy
The State Investment Council grew out of an arrangement that dates to New Mexico’s admission as a state in 1912. The federal government gave the state large tracts of land with the proviso that it be used to fund the public services, and could not be sold.
“When the federal government gave the land, it wasn’t known that this was going to have oil and gas on it and be extremely valuable,” Brown said.
The fracking boom of the mid-2000s and 2010s propelled New Mexico’s fund into the top tier of sovereign wealth funds in the US and globally. In the most recent fiscal year, the fund distributed $2.6 billion back to the state and by 2050 could represent one-third of the state’s revenues.
Already, the fund covers the costs for more than one-quarter of all K-12 education in the state and for more than three-quarters of early childhood education. Starting last month, families in New Mexico are eligible for assistance paying for childcare, regardless of income level, through the $10 billion Early Childhood Trust Fund, part of the State Investment Council.
The fund has only recently moved back into venture capital and private equity. Brown, a prosecutor for more than a decade in the New York Attorney General’s office, was recruited to New Mexico in 2013 to help clean up the aftermath of a pay-to-play scandal that shook the State Investment Council when it came to light in 2009. An advisor to former Gov. Bill Richardson agreed to settle claims that he directed state investments to firms that paid fees to his son.
“There was a long period of time when people were very much gun-shy about getting involved with the private equity asset class,” Brown said. He moved over from the general counsel’s office to help lead the fund’s private equity portfolio in 2023 before taking over its climate strategy last month.
The SIC made a $50 million commitment to DCVC last year, in part to encourage the firm to help commercialize research from the Los Alamos National Laboratory and Sandia National Laboratories in Albuquerque. In November, the SIC committed $80 million to several funds of UP.Partners, a climate tech VC with a focus on mobility and transportation. Both DCVC and UP are investors in Pacific Fusion.
“We need somebody to actually know how to make money in this field,” Brown says. “We’re not giving out participation awards. We are looking for people who can actually make this new industry happen and happen in New Mexico.”
Growth potential
Brown said the state is grateful for the oil and gas resources that created its wealth – but that the future is renewable.
“We have a definite belief that the world of renewable energy is going to grow exponentially over time,” he says. “Why? Because otherwise our climate will be destroyed. So it has to happen.”
A 2023 memo about the fund’s climate tech investments makes clear that the driver is financial returns, not climate action. “The purpose of this sub-strategy is not to decarbonize the atmosphere and prevent global warming, but rather to make money and to help grow a segment of New Mexico’s economy that has significant growth potential,” the memo explains.
Sacca, a legendary tech investor turned climate champion, played to that perspective in pitching the State Investment Council in August in a live-streamed meeting.
“The core insight we had was that the economics of the climate investing business had shifted such that it didn’t need subsidy anymore,” he said. “We saw a dramatic shift in how the cost of starting companies in space came down, and how the demand for this stuff was just increasing.”
As an LP in Anzu Partners, the State Investment Council got exposure to Houston-based XGS Energy, a developer of advanced geothermal projects. The investment has delivered exponential returns, including XGS construction of a 150-megawatt power project in the state that will supply power to Meta to power its data centers. Anzu led XGS’s $14 million Series A financing in 2023.
“The fund we invested in was pushing them to this. New Mexico is very well situated for geothermal, so it’s a natural fit,” Brown said. “Now we’ve got a billion dollar New Mexico project. That’s the magic of venture capital right there.”
The growth of the State Investment Council is helping rewrite the narrative in New Mexico, one of the poorest states in the US. The distributions from the SIC’s 14 permanent, endowment and reserve funds have helped the state increase its budget outlays and prevent layoffs even as other states are cutting back.
“Hold your head up high. You may not like everything that’s happening here, but New Mexico, you are not a poor state,” State Sen. George Muñoz of Gallup said on the senate floor during last year’s budget debate. “Quit telling other people you’re a poor state.”
Brown says New Mexico is in an enviable position among climate investors, with plenty of dry powder at a time when company valuations have been depressed by the withdrawal of federal policy support.
“We’re really very lucky. We’ve got a huge endowment. We’ve got capital and it’s coming at exactly the right time. We’ve got a huge budget increase because of this,” he says. “We’ve got the money at a time very few people do.”
