Two Houston venture capitalists weigh in on the state of startup investing in an economic climate recovering from the COVID-19 crisis. Getty Images

It's no secret that — in light of coronavirus-caused closures, market disruption, and historic unemployment — venture capitalist might be a little more hesitant to join in on a startup's investment round. Yet one Houston VC group has managed amidst the crisis — and even succeeded in closing its most recent fund.

Fitz Gate Ventures, which operates out of Houston but with the support of Princeton University, announced the closing of its Fund II on May 5. Focusing on seed and pre-seed rounds, co-founders and managing directors Mark Poag and Jim Cohen will be looking for startups across industries — usually with some revenue and customer base — to write around $500,000 checks to.

At a virtual panel event hosted by Houston Exponential, the investors say they have appreciated focusing on smaller deals in times like these — it's allowed them to work closely with their portfolio of 15 startups, two of which (Cheers and Spruce) have roots in Houston.

"We are definitely more hands-on with our founders," Cohen says on the panel, noting that it feels like they are having board meetings daily — virtually, of course.

Most of these meetings, Poag explains, are focusing on making sure the portfolio startups have enough runway with their cash reserves to make it at least through the end of the year without any new sales. Of course, that's meant cutting salaries and employees and finding other options to operate in a lean way.

Fitz Gate also has stayed in touch virtually with its Friends of Fitz group — a unique network of Princeton-related professionals (such as faculty, fellow VCs, domain experts, etc.) that give the investors and their portfolio companies a strategic advantage.

While the video conferences are useful to stay in touch with existing portfolio companies, Poag says he — as well as other VCs — might be wary of making new investments in this capacity.

"We haven't invested in any new companies since the COVID situation, but it will be interesting to see if we and other venture capital firms get comfortable with making investments without an in-person meeting," says Poag on the panel.

Generally, Cohen says he has observed a different investment environment since the beginning of March, and there's no clear indication when things will change.

"I think in the short-term, investing will be slower. Basically, people are still trying to figure out what's going on," Cohen says, noting how, in March, the tides seemed to change every 24 hours. "Now, things have started to slow down, but the ground is still shifting beneath our feet. I think most venture investors are proceeding cautiously."

Something else to keep an eye on, as the Fitz Gate founders have experienced, is that startups are making changes to their products in order to provide a more relevant offer to customers. One of the fund's portfolio companies is Houston-founded Spruce, which recently started offering disinfecting deals along with its concierge services to apartment dwellers.

"None of our companies have pivoted to change anything they are doing fundamentally to take advantage of the situation," says Cohen, citing some supply chain software startups and a charity-based startup that have also seen business success during the COVID-19 crisis.

However, approaching VCs for the first time is now a different story, amidst the crisis. While the Fitz Gate founders explain that they open and respond to every email inquiry from startups, that's not the case for most VCs who prefer a warm introduction — but maybe not even that considering the current economic climate.

"If you're approaching a venture investor today, you might get a bit of a weird look," Cohen says of startups looking to fundraise.

On the virtual panel, the duo shared some insight on their passion for venture funding, as well as some general advice for startups. One key takeaway from the investors was a reminder that most VCs are funding between 1 and 2 percent of deals that come across their table.

"Don't get discouraged," Cohen says. "Any venture fund you talk to, they're not geniuses. They are operating on very limited information about whatever it is you pitched them in a really short fashion."

While it is disheartening to hear a "no" from an investor, it doesn't mean the startup's idea or product isn't valid.

In wrapping up the call, Cohen remarks on the environment for Houston innovation. While he admits the ecosystem lacks access to funding, he observes that this will change in a matter of time.

"It's amazing how many startups in Houston — and the support infrastructure," Cohen says, noting startup development organizations like The Ion, The Cannon, and more. "So much going on in this ecosystem, so I think, in that sense, it's an incredibly vibrant place to be as a founder."

From restaurant finding apps to a healthy food startup — these are the lifestyle startups to watch in Houston. Getty Images

5 Houston lifestyle startups changing the way you live, work, and play

Companies to watch

While sometimes it seems like a lot of the Houston innovation landscape is energy and medical tech companies, there are several lifestyle-focused startups that fly under the radar. Whether it's a fizzle cocktail creator — or a cure for a hangover from said fizzy cocktail — these five Houston startups are ones to watch.

Cheers

Cheers, which has its office out of The Cannon, serves up pre-drinking pills to prevent any day after regrets. Courtesy of Cheers

While the sharks on Shark Tank didn't bite, Brooks Powell's Houston-based startup, Cheers, went on to close a $2.1 million seed round lead by NextView Ventures, which has the likes of TaskRabbit, thredUP, and Letgo among its portfolio. The new investment, Brooks says, has been helping the company rebrand from Thrive, its original moniker, to Cheers.

Powell thought up the company when he was a sophomore at Princeton University. He came across the science surrounding his product's key ingredient, Dihydromyricetin, a natural extract — like caffeine to coffee — that had been identified as an anti-alcohol treatment in 2012 following experiments on the effects on rats.

"I started working with some of my professors and asking them if it was safe and would it be effective," Powell says. Read more about Cheers' growth and origin story here.

Work & Mother

Work & Mother gives new moms a save, stylish place to pump during the workday. Courtesy of Work & Mother

Abbey Donnell has been advocating for new mothers long before she had any babies of her own. Though, as of a few weeks ago, the founder of Work & Mother claims a new title of mom to her newborn son.

While laws regulate employers to have private nursing rooms available for new moms, most either offer sub-par conditions or worse — none at all.

"There were constant stories about [women] being told the use the IT closet, or the conference room, or the bathroom or their cars," Donnell tells InnovationMap. "Some of them were pretty big oil and gas firms companies that should've had the resources and space to do better than that."

Work & Mother offers a solution that solves the problem on both sides: A suite of nursing rooms in a downtown office building where business can purchase memberships for employees — and new moms can have a stylish, relaxing place to pump. Read more about Work & Mother here.

Crityk

Crityk's main goal is to be a marketing asset to restaurants. Getty Images

What started as Sumit Sikka's mission to find the best Moscow Mule in Santa Monica has turned into a restaurant locating tool that doubles as a marketing platform for eateries. Houston-based Crityk launched last fall and now serves Houston and Austin restaurants.

"That was kind of the first big pivot," Sikka says. "First, we had an app based on user content. Then we pivoted to have content curated by the restaurant. For the first time ever, the restaurant gets to create their own profile."

There are hundreds of restaurants from Houston on the app now. Read more about Crityk here.

My Drink Bomb

What started as an idea to get her kids to drink more water has turned into a profitable party favor company. Courtesy of My Drink Bomb

Chloé Di Leo was just trying to encourage her kids to drink more water is now by creating fizzing, flavored drink mixes. She sent some extras to school with her kids, who then came home that day with $40.

"Our kids took some to school and came home with some pocket change," Di Leo tells InnovationMap. "They weren't supposed to sell it, but the kids liked it."

Di Leo realized there was a market for these mixes — specifically for adult beverages. She launched My Drink Bomb LLC in Houston at the beginning of summer 2018 and tells InnovationMap that the product was inspired by bath bombs, fizzing once added to a beverage. She created the company with her husband, William Roberts. Together, they own a few local businesses, and Di Leo also is also a jewelry designer at her own store, Chloé Di Leo & Co. Read more about My Drink Bomb here.

The Blonde Pantry

The Bayou City has its own Blue Apron-style startup with locally sourced produce. Courtesy of The Blonde Pantry

While Marla Murphy, a local entrepreneur and nutritionist, has helped Houstonians make healthy decisions with her food blog and consulting company for years, she wasn't sure she was doing enough. Now, the Houstonian has expanded from her meal delivery service to her own store front for locally sourced meals and meal kids.

Murphy relaunched her company, The Blonde Pantry, in March of last year she says to create the only local meal delivery service for the greater Houston area. She opened her store at 2800 Kirby Dr. in February. Read more about The Blonde Pantry here.

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How this Houston innovator's tech is gearing up to impact EV charging, energy transition

houston innovators podcast episode 172

With more and more electric vehicles on the road, existing electrical grid infrastructure needs to be able to keep up. Houston-based Revterra has the technology to help.

"One of the challenges with electric vehicle adoption is we're going to need a lot of charging stations to quickly charge electric cars," Ben Jawdat, CEO and founder of Revterra, says on the Houston Innovators Podcast. "People are familiar with filling their gas tank in a few minutes, so an experience similar to that is what people are looking for."

To charge an EV in ten minutes is about 350 kilowatts of power, and, as Jawdat explains, if several of these charges are happening at the same time, it puts a tremendous strain on the electric grid. Building the infrastructure needed to support this type of charging would be a huge project, but Jawdat says he thought of a more turnkey solution.

Revterra created a kinetic energy storage system that enables rapid EV charging. The technology pulls from the grid, but at a slower, more manageable pace. Revterra's battery acts as an intermediary to store that energy until the consumer is ready to charge.

"It's an energy accumulator and a high-power energy discharger," Jawdat says, explaining that compared to an electrical chemical battery, which could be used to store energy for EVs, kinetic energy can be used more frequently and for faster charging.

Jawdat, who is a trained physicist with a PhD from the University of Houston and worked as a researcher at Rice University, says some of his challenges were receiving early funding and identifying customers willing to deploy his technology.

Last year, Revterra raised $6 million in a series A funding round. Norway’s Equinor Ventures led the round, with participation from Houston-based SCF Ventures. Previously, Revterra raised nearly $500,000 through a combination of angel investments and a National Science Foundation grant.

The funding has gone toward growing Revterra's team, including onboarding three new engineers with some jobs still open, Jawdat says. Additionally, Revterra is building out its new lab space and launching new pilot programs.

Ultimately, Revterra, an inaugural member of Greentown Houston, hopes to be a major player within the energy transition.

"We really want to be an enabling technology in the renewable energy transition," Jawdat says. "One part of that is facilitating the development of large-scale, high-power, fast-charging networks. But, beyond that, we see this technology as a potential solution in other areas related to the clean energy transition."

He shares more about what's next for Revterra on the podcast. Listen to the interview below — or wherever you stream your podcasts — and subscribe for weekly episodes.


Report: Houston's hot medical office market might be on track to cool

by the numbers

Houston’s medical office market is on a roll.

A report from commercial real estate services company JLL shows net absorption and transaction volume saw healthy gains in 2022:

  • The annual absorption total of 289,215 square feet was 50.5 percent higher than the five-year average.
  • Transaction volume notched a 31.7 percent year-over-year increase.

Meanwhile, net rents held steady at $26.92 per square foot, up 1.3 percent from the previous year. The fourth-quarter 2022 vacancy rate stood at 15.9 percent.

Despite those numbers, the report suggests a slowdown in medical office rentals may be underway.

“Tenants who may have previously considered building out or expanding their lease agreements are now in a holding pattern due to increased construction costs and higher interest rates,” the report says. “These factors are having a direct impact on financial decisions when it comes to lease renewals, making it more likely that tenants will remain in their existing location for the foreseeable future.”

Still, the report notes “a number of bright spots for the future of healthcare in Houston.” Aside from last year’s record-high jump in sales volume, the report indicates an aging population coupled with a growing preference for community-based treatment “will lift demand even higher in coming years.”

The report shows that in last year’s fourth quarter, 527,083 square of medical office space was under construction in the Houston area, including:

  • 152,871 square feet in the Clear Lake area.
  • 104,665 square feet in the South submarket.
  • 103,647 square feet in Sugar Land.
Last fall, JLL recognized Houston as a top city for life sciences. According to that report, the Bayou City lands at No. 13 in JLL’s 2022 ranking of the country’s top 15 metro areas for life sciences. JLL says Houston “is poised for further growth” in life sciences.

Houston financial services firm announces acquisition, plans to grow

M&A radar

A Houston-based financial services company has made a recent strategic acquisition that gives it a new banking status.

LevelField Financial, which is creating a platform that combines traditional banking and digital asset products and services, announced this week that it is acquiring Burling Bank, an FDIC-insured, Illinois state-chartered bank. According to the company, once it receives regulatory approval, "LevelField will be the first full-service bank to offer fully compliant traditional banking and digital asset services."

The financial terms of the deal's transaction, which is expected to close later this year, were not disclosed.

The combined company will be able to provide traditional banking services, as well as LevelField's digital asset management. Burling Bank's senior management team will join LevelField's leadership, per a press release. They will focus on serving the bank's existing clients and growing the banking business nationwide.

"We conducted a broad review of banks in the U.S. to find the ideal institution with both an existing business and a management team who are aligned with our vision; we exceeded our expectations with Burling Bank. With this acquisition, LevelField will become a traditional bank, albeit one serving customers interested in the digital asset class," says Gene A. Grant II, CEO of LevelField Financial, in the release.

"We are thrilled to have the Burling executives join our leadership team, and together we intend to deliver fantastic customer service and well-designed products to customers who have an interest in accessing the digital asset class through a traditional bank," he continues.

Founded in 2018 by former banking executives, LevelField's leadership believes "the future of money is digital and that banks will continue to be a trusted provider of financial services," according to the website. This acquisition comes ahead of the company's plans to expand nationally.

"LevelField's strategic approach presented a tremendous opportunity for the bank to expand beyond our local footprint and serve customers with shared interests across the nation," says Michael J. Busch, Burling Bank president and CEO. "Together, we will continue to provide superior service and demonstrate that we truly understand the expanding and unique needs of our customers. Additionally, through the carefully developed suite of products we can address our customers' interests in digital assets and introduce them to LevelField's safe, simple, and secure platform."