Friday, March 09, 2012

WBJ: CIT "GAP" Fund May Face Budget Cut

Here is today's story by Bill Flook about the Virginia House and Senate budgets and how CIT's early stage equity fund may fare...

The state nonprofit fund that supports Virginia tech companies is facing steep cuts from the General Assembly, setting up a potentially jarring financial reduction after a banner year.
The House and Senate have cut Gov. Bob McDonnell’s funding proposal for the Herndon-based Center for Innovative Technology and its GAP Funds program, though the budget has yet to be finalized.
The CIT GAP Funds is in the middle of a record stretch. Since July, the group has doled out funds to more than 20 startups — topping any year since its 2005 founding. About half of those deals closed since the beginning of this year. That’s in large part due to record funding. This fiscal year, the group has had $6 million at its disposal: $4 million in state appropriations and $2 million in stimulus cash from the Department of Energy.
Officials with the Center for Innovative Technology, a state-funded nonprofit, aren’t expecting another infusion from the federal government, which was always seen as a one-time funding source. But spending proposals by both the Virginia House and Senate are also threatening to shrink the perennial state dollars upon which CIT depends, returning it to the fiscal uncertainty that has long plagued the group. When CIT won its record $6 million in funding, for example, it was coming off a year in which it had only $500,000 to invest.
“We have a huge pent-up demand for these funds,” said Hap Connors, CIT’s vice president of government and public affairs. “We’re hearing from the marketplace, industry and universities both, that they need a reliable source of funding from these programs, or else it will lose credibility and they won’t participate.”
CIT GAP Funds’ recent deals include:
○ Norfolk-based financial software startup Harbinger Technology Solutions LLC.
○ McLean-based solar-powered water heater company Sunnovations Inc.
○ McLean-based professional networking site Brazen Careerist Inc.
○, an Oakton-based social network.
○ Charlottesville-based drug developer Xdynia LLC.
○ Distil Inc., a cloud security company based in Falls Church.
○ Bristol-based WireTough Cylinders LLC, which makes lightweight natural gas tanks.
The fund typically parcels out investments as large as $100,000 when investing alone, or as much as $500,000 when joining with other angels or venture funds.
That growth in check writing has elevated CIT’s profile among a cash-hungry local startup community, as well as fellow seed investors. Jonathon Perrelli of D.C.-based Fortify Ventures LLC, which has co-invested with CIT, calls the team “talented” and “active.”
The question now is how active the group will be in the coming two years after it deploys the rest of its $4 million appropriation by the end of the fiscal year in June.
McDonnell proposed in his two-year budget to keep CIT’s funding level at $4 million for both fiscal 2013 and 2014, but both the House and Senate have taken their own, more tight-fisted route.
The two-year spending plan put forth by the GOP-controlled House would put about $3 million for each of the next two years into CIT Gap Funds.
The Senate’s plan is more complicated. It would grant $4 million to the fund in fiscal 2013 but eliminate funding in the second year.
That could change, however, depending on whether the $1.2 trillion in automatic federal budget cuts are triggered in 2013.
Leaders from each chamber are locked in a stalemate over the budget, which must be approved by March 10 to prevent legislative overtime.
There is no guarantee that the final budget will look anything like the versions approved by the House or Senate.
“Based on reports we got from the General Assembly, we are optimistic of having a healthy fund from which to invest in the upcoming year,” said Tom Weithman, managing director of CIT GAP Funds.

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