Nevada Treasurer Hopes PE Gamble Pays Off

As its population boomed last decade, Nevada ranked as the country’s fastest-growing state. But one group the Silver State never managed to attract was venture and private equity investors.

Even today, there’s not a single sizeable venture fund based in the Nevada or a satellite office maintained by a major firm. Private Equity firms have also largely shied away from the state, with few deals there and even fewer local investors.

Starting now, however, Nevada is taking steps to raise its venture and private equity profile. Earlier this month, the state signed a contract with fund-of-funds investor Hamilton Lane to manage its $50 million Silver State Opportunity Fund, which will invest in Nevada companies. Under the agreement, Hamilton Lane will invest in venture and private equity funds that back companies in the state as well as co-invest directly in such businesses. Returns from the fund will go to K-12 education.

PeHUB caught up last week with Nevada State Treasurer Kate Marshall, a former peace core volunteer and antitrust prosecutor who is two years into her second term. Marshall says that while the hope is that the fund will spur job creation and economic development within the state, that’s not the focus for investments, which are to be industry agnostic and selected purely based on potential profitability.

“You don’t start off with: I want a Lego company,” she says. “You start with: What kinds of companies are going to give me returns? Your expectation is not the driver here. Return is the driver.”

While the Silver State fund has yet to make its first investment, Marshall did point to some companies operating in the state that might serve as models.  One is Ormat Techonologies, a developer of geothermal power facilities based in Reno. Another, not actually headquartered in Nevada but with significant operations there, is online retailer Zappos. Company founder Tony Hsieh has been snapping up property in downtown Las Vegas in recent years, as part of an ambitious plan to revitalize the neighborhood.

Nevada, Marshall adds, is also strong as a military contractor and has substantial reserves of rare earth minerals that could attract mining investment.

Still, Marshall acknowledges that the state has a long way to go to develop a thriving private equity and venture ecosystem. An analysis by Hamilton Lane concluded that Nevada receives five times less venture capital, on a population adjusted basis, than the average U.S. state. Moreover, while there are a few networks of angel investors, the state lacks institutional venture capital investors.

Nor is Marshall counting on the state’s business-friendly tax structure to draw investors. Previous studies, she says, have shown that low taxes are not a significant driver for private equity and venture firms in terms of determining where to headquarter and where to invest. (This seems to make sense, as most private equity and venture firms are based in New York and California, not
exactly known as low tax havens.)

While the fund won’t be targeting investments based on their job creation potential, Marshall says she does plan to track what employment opportunities are created by the companies it backs. The hope, she says, is that picking the strongest companies will provide the most enduring boost to the job market.

“You want jobs that last, and to get those you need a company that lasts,” she says.

Photo courtesy of Nevada State Treasurer’s Office.