Editor’s Note: Sponsored by Monday Properties and written by ARLnow.com, Startup Monday is a weekly column that profiles Arlington-based startups, founders and funders. The Ground Floor is Monday’s office space for young companies in Rosslyn. The Metro-accessible space features a 5,000-square-foot common area that includes a kitchen, lounge area, collaborative meeting spaces, and a stage for formal presentations.
CIT Gap Funds is the program that invests in Virginia-based, early-stage technology, life science and “cleantech” companies. According to Gap Funds Managing Director and founder Tom Weithman, the Gap Funds program is a 501(c)3 nonprofit that receives between $3 million and $4 million annually from the state to invest. With a portfolio of 113 companies, it’s widely believed to be the most active angel investor in the D.C. area.
CIT owns equity in 13 Arlington-based companies: Airside Mobile, CirrusWorks, Encore Alert, LiveSafe, uKnow, PerformYard, Speek, Veenome, Zoobean, Power Supply, Wealthengine, DistilIT and Loop88. CIT also has pledged an investment to Rosslyn-based Ostendio, but Ostendio has yet to close its seed funding round.
For at least some of those companies, the CIT Gap Funds investment spurred their move to Arlington. Zoobean, which was featured on ABC’s Shark Tank this spring but secured investment before the episode aired and CIT knew who had invested from the show. When the episode aired, Zoobean co-founder Felix Brandon Lloyd and his wife and cofounder, Jordan Lloyd Bookey, could finally spread the word that Mark Cuban had invested $250,000 in their company. They’re now headquartered in Rosslyn’s ÜberOffices.
The CIT investors knew “there was a major opportunity coming,” Lloyd said, but decided not to wait and helped facilitate and gather investors for the company’s $980,00 funding round, completed in April.
“They agreed to do the legal work and diligence and to tell other investors that they were the lead investors,” Lloyd told ARLnow.com. Zoobean had been headquartered in D.C.’s 1776 accelerator. “They told me we’d have to move to Virginia, I told him we were open to that… I think it was one of the things in my [investment] deck, you anticipate what things they may ask. I made it clear that we understood what it meant so they didn’t have to sell us.”
Most Arlington companies interact with CIT’s Dan Mindus, who is a founder of venture capital firm NextGen Angels. Lloyd initially met Mindus for coffee and advice, and in their conversation, Mindus broached the idea of pursuing a CIT investment, Lloyd said.
“I knew nothing about CIT at the time, I was sincerely asking him for advice,” Lloyd said. Mindus would sponsor Zoobean to CIT’s investment board, which gave Zoobean pointers after an “initially negative” response. When Lloyd came back, after working with Mindus and CIT, the fund eventually agreed to invest $100,000 with a $50,000 reserve available.
Weithman said CIT typically invests between $100,000 and $200,000 in a company, but its primary mission is to catalyze future investment. Similar funds in other areas, like on Lloyd had been a part of with his previous company in Pittsburgh, invest money to create jobs. That’s not what the Gap Funds are necessarily intended to do.
“Company growth and profitability are the ultimate arbiter of success in this early stage investment,” Weithman said. “We consider investment by the private sector to be a highly validating process metric of what we do. If we invested for job growth, that could send you down a number of unusual paths. High-growth techonology companies develop other innovation and contribute to Virginia’s economic ecosystem.”
Weithman said of all the companies the Gap Funds have invested in, $15 of the companies’ funds have come from private investors for every dollar of state money. CIT does the research and confirms that the business is a viable one, and other investors are more comfortable following suit.
“We’ve been good at getting other money behind us, which gives entrepreneurs more runway,” Weithman said. “We think of ourselves as a double-bottom line fund. We return to our fund, and it’s available to us to reinvest in other companies, so we don’t have quite the same economic incentives as other investors. We do consider ourselves an active investor, we take a board observer seat, we help occasionally in business strategy and helping companies to get to the next round of financing.”
The fund was founded in 2004, but it has significantly increased its activity in the past few years after former Gov. Bob McDonnell increased its funding. Although private sector firms sometimes invest more money and participate in Series A, B and C rounds that could tally into the billions of dollars, CIT has a crucial role.
NextGen Angels investor and ÜberOffices founder Raymond Rahbar said more than 10 companies that have received CIT funding have come through ÜberOffices’ Rosslyn and Tysons Corner locations.
“The more access to capital there is in the region, the better it is for the region as a whole,” Rahbar said. “Everybody’s noticed they’ve been more active partially because there are more tech startups, there’s more talent now, and they’ve gotten a lot of people, you can see it throughout their ranks… It helps keeps companies here and prevent them from flocking to Silicon Valley and New York. We’re starting to get great stuff here and entities like CIT help start that.”
Hans Miller, co-founder and CEO of Airside Mobile, a mobile app that moves its users through airports faster, said CIT funds will spur the area forward. Airside Mobile was already based in Arlington when it received CIT investment.
“Their early participation gave us immediate credibility in the Virginia and Metro D.C. community,” Miller said in an email. “As an Arlington-based company, we think the Rosslyn-Ballston corridor is on the verge of becoming a hot startup scene. We think CIT will play a big role in making this happen here in this area and in Virginia overall.”
Although the focus isn’t on job growth, there’s no doubt among the companies in CIT’s portfolio, jobs have been created. But, Lloyd says, even if Zoobean doesn’t plan on hiring many new people, its presence here is still a boon for the economy.
“I went from never going to Virginia at all to paying for parking, paying for lunch, so I feel like we’re spending lots of money right now already in Virginia,” he said. “We’re hopefully going to make some money as a company and hopefully that money goes back to CIT. We’re making money, spending money and adding to their reputation. CIT is the reason we’re in Virginia, and I think that’s a good thing.”