Mexico Environment Fund Created : * Finance: Irvine venture capital firm, in concert with Mexican bank, others will finance projects in Mexico.

By DEAN TAKAHASHI

April 15, 1992 12 AM PT

TIMES STAFF WRITER

IRVINE —

After a year of laying the groundwork, an Irvine venture capital company has launched a $50-million fund to invest in environmental companies that do business in Mexico.

Ventana Growth Funds will jointly manage the North America Environmental Fund with Nacional Financiera S.N.C., Mexico’s biggest state-owned development bank, said Glenn Kline, a Ventana vice president. Nacional Financiera has contributed $12.5 million--or 25%--of the investment fund. Ventana and various overseas partners are raising the rest.

Mexico’s environmental problems are notorious. Smog in Mexico City became so bad last month that schools were closed, industries cut their operations and half the city’s cars were banned from the streets. Hazardous waste disposal problems are endemic along the U.S. border and in Mexico City. And the country’s poor water treatment facilities are often blamed for outbreaks of cholera.

“All those problems make a compelling case for us to target the environmental industry in Mexico,” Kline said.

Mexico has budgeted $4.6 billion to address environmental problems during the next four years. The federal government has designated Nacional Financiera to provide financial support for all environmental projects, including a venture to build a network of water treatment and water purification plants throughout Mexico.

The creation of the new fund comes at a time when financing for start-up companies is at a premium. The capital crunch resulting from the recession and the savings and loan crisis has dealt a big blow to venture capitalists. Venture capital investments have plummeted from a record $4.2 billion in 1987 to just $1.3 billion in 1991, according to Venture Economics Inc. in Newark, N.J.

It took Ventana about a year to acquire the capital and secure the approvals required by the Mexican government for the environmental fund, Kline said. So far, Ventana has raised only $20 million, but Kline said lack of capital wasn’t the reason for the delay.

Besides Nacional Financiera, Ventana’s fund also had to win support from the U.S. Department of Commerce, the U.S. Environmental Protection Agency and numerous Mexican government agencies and industrial groups.

“It was a very careful process because we wanted to be sure to have the support of the government, politicians and industry,” Kline said. “We think environmental concerns are shared internationally, and we believe the investment opportunities are excellent.”

The company has an office in Mexico City, but the fund will be managed by Thomas O. Gephart, managing director of Ventana, in Irvine. The fund will finance companies in agriculture, alternative energy, biotechnology, hazardous waste management, pollution control, recycling, water treatment and other industries.

“We wanted to make sure we targeted the right companies and met the needs of Mexico, where the industry is young,” Kline said. “We are looking at established companies with proven technologies that can be transferred to Mexico.”

The project is the seventh venture capital partnership that Ventana has launched since its founding in 1983. The company has $130 million in funds invested in 43 companies.

About 15% of Ventana’s overall funds are invested in environmental companies, but Ventana’s emphasis in the past has been to invest in biotechnology, computer, telecommunications and medical companies.

The bulk of Ventana’s investments have been in companies in Orange and San Diego counties, but Kline said the new fund will cast its net more broadly to find promising companies in the environmental business. The fund plans to invest between $250,000 to $3 million in each of about a dozen companies.

Ventana’s Venture Capital Plan

Financing for start-up companies has been on the decline since 1987, when it reached $4.2 billion. Last year, only $1.3 billion in venture capital was made available to companies, a drop of 69% from 1987. But Ventana Growth Funds is bucking that downward trend with its plans to raise a total of $50 million to invest in environmental companies that do business in Mexico.

Ventana Growth Funds at a Glance

* Headquarters: Irvine

* Managing partners: Thomas O. Gephart, F. Duwaine Townsen

* Founded: 1983

* Focus: Attracting equity capital from overseas and domestic investors

* Assets managed: $130 million; $500 million in equity financing attracted from other investors.

* Industry portfolio: Investments in 43 companies in following industries--biotechnology, medical technology, health services, solid state materials and electronics, environmental, computer products, energy management

Affiliated Funds

Eight funds are managed under the umbrella of Ventana Growth Funds. (Four funds that are already fully invested are not listed.)

North America Environmental Fund

* Capitalization: $50 million

* Major partner: Nacional Financiera, 25% strategic partner

* Focus: Agriculture, alternative energy, biotechnology, hazardous waste management, pollution control, recycling, water treatment firms in the United States and Mexico

Ventana Environmental Fund VI

* Capitalization: $50 million

* Major partner: In the process of being formed

* Focus: Environmental companies in the United States.

* Ventana Growth Capital Fund V

* Capitalization: $30 million

* Major partner: Atrix Investment Ltd., Montreal, Canada

* Focus: Life science and high-tech firms in Southern California

Ventana Leasing

* Capitalization: $50 million

* Major partner: Praktikertjanst AB, Stockholm, Sweden

* Focus: To provide lease financing to Ventana Growth Funds’ portfolio companies