How a company that secures planes and trains nabbed $20M in Series A funding

Sponsored by Monday Properties and written by ARLnow, Startup Monday is a weekly column that profiles Arlington-based startups, founders, and other local technology news. Monday Properties is proudly featuring 1812 N. Moore Street in Rosslyn.

(Updated on 11/16/21 at 6 p.m.) Shift5, a Rosslyn-based cybersecurity company, has raised $20 million in Series A funding to help protect the world’s transportation infrastructure and weapons systems from cyberattacks.

The money will allow Shift5 to expand its Arlington office, adding secured facilities and labs, and add to its 50-person team, according to its announcement.

Shift5 also plans to educate fleet operators, regulators and legislators on the risks that unsecured computerized infrastructure present and show them how the data collected by these digitized planes and trains can be used to improve their efficiency, the announcement said.

The round was led by 645 Ventures, with participation from Squadra Ventures, General Advance and First In.

The company, founded by two veterans of the U.S. Army’s Cyber Branch, closed its seed funding round in 2019. Since then, Shift5 has grown through a series of contracts with several large, national passenger rail systems and more recently, with the U.S. Army and Air Force to beef up security on their combat vehicles and planes, respectively.

With the news of the second funding round and new contracts, ARLnow asked Shift5’s CEO and co-founder Josh Lospinoso to reflect on the entrepreneurial process and on what it takes to raise money as a startup. The following Q&A has been slightly condensed and edited for clarity.

ARLnow: How long have you been actively working on raising Series A funding? Did the numbers meet or exceed expectations?

Lospinoso: Shift5 closed seed funding in 2019, and in the aftermath, won a series of contracts, including work with the US Air Force, which allowed us to grow organically through this year. Our Series A was very competitive, and ultimately our new partners at 645 represented a huge addition to the team that we couldn’t pass up.

ARLnow: When you started the company, were you someone who got energized by the idea of talking to investors, or was that intimidating? Do you think your product is an easy sell, given the immediate and debilitating threats cyberattacks pose?

Lospinoso: The Shift5 founding team is very passionate about the risk to national security posed by insecure transportation infrastructure. The idea of spreading awareness about the problem was more exciting and energizing than intimidating. We live in an era in which the cyber physical effects of cyberattacks are rapidly becoming a national menace. We’re seeing the US government act here — for example, the TSA is mandating rail and air operators tighten cybersecurity. Our customers are just glad there are folks out there solving the problem for them.

ARLnow: Was there a steep learning curve to starting a company after leaving the military? Or do you think that it imparted some entrepreneurial skills?

Lospinoso: There was a pretty steep learning curve. The military prepared Mike and me for this. You’re used to jumping into high-tempo environments, having to learn the ropes quickly under a lot of pressure.

ARLnow: Which was harder, raising Seed or Series A funding?

Lospinoso: Both have difficulties in their own way. Seed Series funding is really team- and mission-focused. The Series A is much more about product/market fit. It’s about showing how your thesis at the Seed Series is playing out. By numbers, relatively few companies raise a Series A successfully. We were fortunate that we faced a problem in uniform that gave us a unique perspective on a very large opportunity. And we see that playing out.

ARLnow: What does it take to raise $20 million?

1. Knowing something about the world that few people know to be true. Go after a big problem facing lots of people. The best kinds of problems are those that people don’t know they have.
2. Having a risk appetite to eschew a steady paycheck and work/life balance to throw every ounce you have at a single problem.
3. Being stubborn enough not to be deterred by short-term setbacks but nimble enough to accept feedback from customers, investors, and employees.
4. Telling the story effectively and rallying others to your cause.
5. Having a maniacal focus on solving customer problems.
6. Having the maturity to give up responsibilities and control to empower those around you. Remember about rallying others to your cause.