What Houston startups need to know about PPP loans

Houston voices

Startup founders seek answers to how PPP loan funds provide their companies security and support. Miguel Tovar/University of Houston

Unless you've been vacationing on Mars for the past six months, you know that a $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was recently approved by Congress. Business owners are sifting through the fine print to see if they qualify for PPP loans for startups.

The stimulus package carries provisions that will surely assist startups and small business during our current state of national emergency. The most notable part of this legislation is known as the Paycheck Protection Program, or PPP.

"Under the PPP, startups can qualify to attain a forgivable loan of 2.5 times the average monthly payroll, with restrictions, of course," explained the vice president of communications for Zeni Inc., Emilie Pires.

Emilie Pires oversees Zeni, a company that helps startups manage financial affairs and helps clients apply for PPP loans.

The federal government has a history of lending to small businesses through the Small Business Administration. The PPP loan differs from past loans, however, because it can be forgiven, and because it doesn't require a personal guarantee.

"Loan forgiveness is the most notable aspect of the PPP. It is significant because if you comply with the requirements, the loan actually functions like more of a grant. It's non-dilutive capital from the federal government to keep your company alive," Pires continued.

Perks of PPP

According to Bloomberg business writer Sara McBride, not requiring a personal guarantee gives startup founders a much needed boost.

"If a loan requires a personal guarantee, the founder would likely be weighed down with heavy personal debt if the startup ended up failing. A loan like this is not very appealing, so it's a big deal that the PPP loan doesn't require a personal guarantee."

Here are the two requirements if you want the loan to be forgiven. Per Bloomberg:

1) You must spend the money within 24 weeks of receiving funds, and;

2) You must use the loan on payroll, rent, mortgage, interest, or utilities.

The affiliate rule

Here's where it gets a little dicey. First off, it's best to consult a lawyer regarding the specifics of the affiliate rule. The affiliate rule essentially states that, if you own multiple startups, you have to count all the employees of all your companies when determining if you qualify for the PPP loan, which requires you to have less than 500 employees total to qualify.

With that said, here is an interpretation given by tech industry venture capitalist and lawyer Ed Zimmerman: "You might be able to skate by the affiliate rule if no one who owns other companies has more than a 20 percent stake in your company, and if no one in your company has enough control to veto any actions from your board."

Qualifying for PPP

Zimmerman also lays out a three-question test that might help you determine if your venture capitalist-supported startup qualifies for a PPP loan. The three questions are:

1) Does your venture capitalist hold 50 percent of your company's equity?

2) Even aside from that, does at least one venture capitalist control the majority of the company's board?

3) Further, does any venture capitalist control large portions of protective provisions, allowing him or her to veto corporate action, giving this venture capitalist control of the startup?

According to Zimmerman, if your answer to any one of the above is yes, you should attain legal counsel. If you answered no to all three, that's great news for you (but should still seek out legal counsel).

It is worth noting that the CARES Act does offer a program for companies with up to 10,000 employees. But those rates will be higher and will come with much bigger caveats.

Again, it's best to consult a lawyer to decide if you qualify to avoid the affiliate rule.

------

This article originally appeared on the University of Houston's The Big Idea. Rene Cantu, the author of this piece, is the writer and editor at UH Division of Research.

Carolyn Rodz of Hello Alice and Aziz Gilani of Mercury Fund discuss their advice for startups looking for federal grants. Courtesy photos

Houston experts give advice for startups seeking financial aid from the CARES Act

from the profesisonals

The United States Congress recently passed the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and it includes several initiatives that provide financial relief for startups and small businesses — but there are a few things these companies should know about the programs.

Houston Exponential hosted a virtual panel with Carolyn Rodz, CEO of Hello Alice, and Aziz Gilani, managing director of Mercury Fund. They broke down some of the concerns with some of the most popular programs.

The Payroll Tax Deferral stipulation allows you to push back paying your payroll tax, which is 6.2 percent of payroll, Gilani says in the livestream. Companies will be required to pay back half that tax in a year's time and the other half in two year's time.

Small businesses can also apply for emergency Economic Injury Disaster Loans, or EIDL loans, that won't require the first payment for a full year. The interest rate is 3.75 percent for for-profit businesses and 2.75 percent for nonprofits with up to a 30-year term. Businesses could even submit to receive a $10,000 grant on their application.

Then, there's the Paycheck Protection Program, or PPP.

"The PPP program is probably the most lucrative of the three programs for startups," says Gilani, "It's the one that has the largest financial impact."

To submit for PPP, business owners look at their last year's worth of payroll and utility expenses, then average out their monthly expenses, and multiply that by 2.5. Small businesses can submit for that amount or up to $10 million. If the loan is spent on their employees and utilities, it's turned into a grant and not required to be paid back. Gilani recommends checking with the SBA for the specific details, but notes that contract workers can't benefit from PPP and must submit individually for aid.

Regarding these programs, Rodz and Gilani shared some other advice as it pertains to Houston's small businesses and tech startups.

Apply ASAP

Banks are already overwhelmed with applications, and some have paused accepting new applications from some entities. Plus, you have no excuse, Rodz says, since the application is simple and can be completed in one sitting.

"Compared to what a normal government loan application looks like, it is light years better in terms of simplicity," says Rodz.

Go to your own bank

Banks are giving priority to existing customers, Rodz explains.

"Go talk to your banker, and really take the time," Rodz says. "They are prioritizing the clients they have relationships with."

There's a technical reason too, Gilani adds. It's easier for banks to submit for a pre-existing customer, and new customers require more paperwork.

Document everything

Currently, Gilani says, the way the program is working right now is it relies on good-faith self-certification of the business owner. The banks, based on approval, will just put the federal money into your bank account. However, there are people put in roles for this act that will come back to verify that everything was honest.

"Lying to the federal government about money they grant you is a felony that comes with jail time," Gilani says. "It's very important that — after all this craziness passes by and the government comes back to audit what happened — you have a lot of documentation in place in order to show that you were fulfilling your good-faith requirement of answering these questions honestly."

Gilani recommends keeping track of how you calculated your payroll, as well as being able to show the effect of the crisis is key. Then, after you receive the funds, you need to be able to show that you used the funds on your employees.

Consult a lawyer if you have questions on eligibility

There's been a lot of discussion on whether or not venture-backed startups qualify for PPP.

"One of the challenges of the program is that it is being administered by the Small Business Administration, which traditionally hasn't worked with venture-backed and angel-backed companies," Gilani says.

Usually, the SBA requires startups to indicate their employee count, which is not to exceed 500. However, if the company is venture-backed, the SBA requires the inclusion of all the employees of all the portfolio companies. Certain legislators have expressed that this wasn't the intention of the program and are working to provide solutions, Gilani explains, and he and Mercury Fund have been working with a legal team to find immediate work arounds.

"There have been lots of lawyers who have been working really hard on trying to solve this problem," Aziz "If anything, we've now created the lawyer stimulus act in the amount of billable hours we've had trying to figure out this problem."

Gilani also recommends getting your lawyer to sign a document confirming that, especially if you are a venture-backed company, that you intended to adhere to the rules of the program.

Ad Placement 300x100

Ad Placement 300x600

CultureMap Emails are Awesome

Property Showcase

Exclusive: Houston hydrogen spinout names energy industry veteran as CEO

good as gold

Cleantech startup Gold H2, a spinout of Houston-based energy biotech company Cemvita, has named oil and gas industry veteran Prabhdeep Singh Sekhon as its CEO.

Sekhon previously held roles at companies such as NextEra Energy Resources and Hess. Most recently, he was a leader on NextEra’s strategy and business development team.

Gold H2 uses microbes to convert oil and gas in old, uneconomical wells into clean hydrogen. The approach to generating clean hydrogen is part of a multibillion-dollar market.

Gold H2 spun out of Cemvita last year with Moji Karimi, co-founder of Cemvita, leading the transition. Gold H2 spun out after successfully piloting its microbial hydrogen technology, producing hydrogen below 80 cents per kilogram.

The Gold H2 venture had been a business unit within Cemvita.

“I was drawn to Gold H2 because of its innovative mission to support the U.S. economy in this historical energy transition,” Sekhon says in a news release. “Over the last few years, my team [at NextEra] was heavily focused on the commercialization of clean hydrogen. When I came across Gold H2, it was clear that it was superior to each of its counterparts in both cost and [carbon intensity].”

Gold H2 explains that oil and gas companies have wrestled for decades with what to do with exhausted oil fields. With Gold H2’s first-of-its-kind biotechnology, these companies can find productive uses for oil wells by producing clean hydrogen at a low cost, the startup says.

“There is so much opportunity ahead of Gold H2 as the first company to use microbes in the subsurface to create a clean energy source,” Sekhon says. “Driving this dynamic industry change to empower clean hydrogen fuel production will be extremely rewarding.”

In 2022, Gold H2 celebrated its successful Permian Basin pilot and raised early-stage funding. In addition to Gold H2, Cemvita also spun out a resource mining operation called Endolith. In a podcast episode, Karimi discussed Cemvita's growth and spinout opportunities.

Rice University's student startup competition names 2024 winners, awards $100,000 in prizes

taking home the W

A group of Rice University student-founded companies shared $100,000 of cash prizes at an annual startup competition.

Liu Idea Lab for Innovation and Entrepreneurship's H. Albert Napier Rice Launch Challenge, hosted by Rice earlier this month, named its winners for 2024. HEXASpec, a company that's created a new material to improve heat management for the semiconductor industry, won the top prize and $50,000 cash.

Founded by Rice Ph.D. candidates Tianshu Zhai and Chen-Yang Lin, who are a part of Lilie’s 2024 Innovation Fellows program, HEXASpec is improving efficiency and sustainability within the semiconductor industry, which usually consumes millions of gallons of water used to cool data centers. According to Rice's news release, HEXASpec's "next-generation chip packaging offer 20 times higher thermal conductivity and improved protection performance, cooling the chips faster and reducing the operational surface temperature."

The rest of the winners included:

Second place and $25,000: CoFlux Purification
Third place and $15,000: Bonfire
Outstanding Achievement in Social Impact Award and $1,500: EmpowerU
Outstanding Achievement in Artificial Intelligence and $1,000: Sups and Levytation
Outstanding Achievement in Consumer Goods Prize and $1,000: The Blind Bag
Frank Liu Jr. Prize for Creative Innovations in Music, Fashion and the Arts and $1,500: Melody
Outstanding Achievement in Climate Solutions Prizes and $1,000: Solidec and HEXASpec
Outstanding Undergraduate Startup Award and $2,500: Women’s Wave
Audience Choice Award and $2,000: CoFlux Purification

The NRLC, open to Rice students, is Lilie's hallmark event. Last year's winner was fashion tech startup, Goldie.

“We are the home of everything entrepreneurship, innovation and research commercialization for the entire Rice student, faculty and alumni communities,” Kyle Judah, executive director at Lilie, says in a news release. “We’re a place for you to immerse yourself in a problem you care about, to experiment, to try and fail and keep trying and trying and trying again amongst a community of fellow rebels, coloring outside the lines of convention."

This year, the competition started with 100 student venture teams before being whittled down to the final five at the championship. The program is supported by Lilie’s mentor team, Frank Liu and the Liu Family Foundation, Rice Business, Rice’s Office of Innovation, and other donors

“The heart and soul of what we’re doing to really take it to the next level with entrepreneurship here at Rice is this fantastic team,” Peter Rodriguez, dean of Rice Business, adds. “And they’re doing an outstanding job every year, reaching further, bringing in more students. My understanding is we had more than 100 teams submit applications. It’s an extraordinarily high number. It tells you a lot about what we have at Rice and what this team has been cooking and making happen here at Rice for a long, long time.”

HEXASpec was founded by Rice Ph.D. candidates Tianshu Zhai and Chen-Yang Lin, who are a part of Lilie’s 2024 Innovation Fellows program. Photo courtesy of Rice

2 Houston high schools rank among America's top 100 in 2024, says U.S. News

best in class

Two Houston high schools are dominating U.S. News and World Report's prestigious annual list of the country's best public high schools.

The 2024 rankings from U.S. News, released April 23, put Houston ISD’s Carnegie Vanguard High School at No. 31 nationally (up from No. 35 last year and No. 40 in 2022) among the country’s best high schools. The school also ranks No. 248 nationally among the best STEM (science, technology, engineering, and math) high schools and No. 12 among the best magnet high schools.

Meanwhile, DeBakey High School for Health Professions ranks No. 70 nationally among the best high schools (down from No. 66 last year and No. 50 in 2022) and No. 19 among best magnet high schools. DeBakey ranked No. 426 nationally among best STEM high schools.

Topping the national list for 2024 is the BASIS Peoria Charter School in Peoria, Arizona.

Each year, U.S. News evaluates about 18,000 high schools on six factors: college readiness, reading and math proficiency, reading and math performance, underserved student performance, college curriculum breadth, and graduation rates.

“The 2024 Best High Schools rankings offer a starting point for parents to understand a school’s academic performance, whether it’s a prospective school or one that their child is already attending,” said LaMont Jones, Ed.D., the managing editor of education at U.S. News, in a release. “Accessible data on our high schools can empower families across the country as they navigate today’s educational environment and plan for the future.”

Elsewhere in Texas
Around the state, these Texas high schools also made it into the top 100 nationally:

Dallas ISD's The School for the Talented and Gifted, No. 6 (unchanged from last year). No. 21 nationally among the best STEM high schools, and No. 3 among the best magnet high schools.
Dallas ISD's Irma Lerma Rangel Young Women's Leadership School, No. 23 (down from No. 18 last year) and No. 10 nationally among the best magnet high schools.
Dallas ISD's Science and Engineering Magnet School, No. 29 nationally among the best high schools (down from No. 23 last year), No. 37 nationally among the best STEM high schools, and No. 11 nationally among the best magnet high schools.
Grand Prairie ISD's Collegiate Institute, No. 30 (up from No. 188 last year). No. 6 nationally among best charter high schools.
Austin ISD’s Liberal Arts and Science Academy, No. 38 (down from No. 32 last year and No. 34 in 2022). No. 34 nationally among the best STEM high schools.
BASIS San Antonio - Shavano Campus, No. 64 (up from No. 81 last year and No. 77 in 2022). No. 76 nationally among the best STEM high schools and No. 13 nationally among the best charter high schools.
Brownsville ISD's Early College High School, No. 71 (up from No. 229 last year).
Dallas ISD’s Judge Barefoot Sanders Law Magnet, No. 85 (up from No. 93 last year and No. 48 in 2022) . No. 21 nationally among the best magnet high schools.

When broken down just to Texas schools, Houston's Carnegie Vanguard High School (No. 5) and DeBakey High School for Health Professions (No. 8) are both in the top 10 best-rated public high schools in Texas this year, U.S. News says.

Other Houston-area schools that rank among Texas' 100 best are:

No. 24 – Kinder High School for Performing and Visual Arts, Houston ISD
No. 25 – Challenge Early College High School, Houston ISD
No. 29 – Young Women's College Prep Academy, Houston ISD
No. 32 – Eastwood Academy, Houston ISD
No. 37 – Harmony School of Innovation - Katy, Katy
No. 40 – Kerr High School, Alief ISD, Houston
No. 43 – Houston Academy for International Studies, Houston ISD
No. 47 – East Early College High School, Houston ISD
No. 59 – Clear Horizons Early College High School, Clear Creek ISD, Houston
No. 61 – Seven Lakes High School, Katy ISD
No. 63 – Early College Academy at Southridge, Spring ISD, Houston
No. 68 – KIPP Houston High School, Houston
No. 70 – North Houston Early College High School, Houston ISD
No. 71 – Victory Early College High School, Aldine ISD, Houston
No. 75 – Tompkins High School, Katy ISD
No. 76 – Clements High School, Fort Bend ISD, Sugar Land
No. 82 – Sharpstown International School, Houston ISD
No. 85 – Tomball Star Academy, Tomball ISD
No. 89 – Westchester Academy for International Studies, Spring Branch ISD, Houston
No. 95 – Harmony School of Innovation - Sugar Land, Sugar Land
No. 97 – Harmony School of Discovery - Houston, Houston
No. 98 – Energy Institute High School, Houston ISD