Gap Investment Fund

Purpose

TEDCO has a long history of supporting the commercialization of technology from proof-of-concept studies to seed-stage investments through its university and federal laboratory technology transfer programs and its Seed Investment Funds.  More recently, the Maryland Venture Fund’s move to TEDCO has given the organization the ability to also make early-stage venture investments.  While together these resources provide a strong continuum of funding from product concept to scaling a company, there still remains a funding gap for companies that need to acquire customers and find themselves between a Seed Investment (technology and market validation) and a Venture Investment (scaling a business).  To address this need, TEDCO established the Gap Investment Fund.

The Gap Investment Fund, which was approved by Governor Hogan and the General Assembly in the FY2018 budget, is available as of July 1, 2017.  The Fund will address this critical gap in capital, which often comes when companies are most vulnerable to leaving Maryland for investments from other states.  The Gap Investment Fund will help retain these Maryland companies, many of which have already taken advantage of Maryland’s various seed and pre-seed funding resources.

Investment Focus

Gap Investments between $250,000 and $500,000 will be made through the fund to help for-profit, technology-based companies solidify strategic partnerships or gain customer traction.  Companies seeking a Gap Investment will be required to secure concurrently a dollar-for-dollar, cash matching investment from other accredited or institutional investors.  It is TEDCO’s preference to follow the lead of the matching investors.  Funds from a TEDCO Gap Investment must be used for new hires – salary and reasonable and customary benefits – to help the company grow and become more firmly established in Maryland.  The Gap Fund can only make investments in companies that have a principal place of business in Maryland.

TEDCO is seeking innovative and highly-scalable companies that are likely to be ready for a venture investment within 12 – 18 months following a Gap Investment.  Competition for the limited Gap Investment Funds is anticipated to be strong, so the selection process will be very competitive.  It is important to be aware that TEDCO makes approximately 40-45 seed investment deals each year.  Many of these companies are potential candidates for a Gap Investment.   In addition, other companies that might be seeking investment from the Maryland Venture Fund or other investment sources will likely apply.  TEDCO anticipates making 2 – 4 investments in FY2018 (July ’17 – June ’18), but hopes to have the ability to make more investments per year in subsequent years.

Good candidates for a Gap Investment will have the following characteristics:

  • A strong, experienced management team;
  • An opportunity for high-growth – projections of at least $25 million in revenues within five years (based on solid assumptions);
  • An innovative, technology-based product with a strong, sustainable proprietary positon/competitive advantage; and
  • A likely opportunity to secure a significant round of financing ($5 million or more) within 12 – 18 months.

Non-life science companies should be able to show revenue growth over the past three quarters.  On the other hand, life science companies should be able to show momentum with partnerships or other investments, a validated reimbursement and regulatory strategy, and an exit strategy model based on comparable companies that have exited in the same space.

Being Considered for a Gap Investment

TEDCO’s approach to selecting companies for Gap Investments is very different from its other seed investment programs due to the number and size of investments associated with the Fund.  TEDCO will follow a more traditional venture model, including identifying companies representing potential investment opportunities, watching their performance over time (possibly a number of months), conducting in-depth due diligence, and selecting the best opportunities for investment.

TEDCO will not have a formal application process for the fund.

TEDCO’s Portfolio Companies (companies that have a reporting or other obligation to TEDCO under a current funding agreement) do not need to do anything to be considered for a Gap Investment.  As part of TEDCO’s standard portfolio management process, these companies will be considered as potential Gap Investment opportunities.  It will be important for these companies to keep their portfolio managers informed about their interest in the Gap Fund and updated on other information about the company so TEDCO is fully informed about the status of its portfolio companies and aware of the best candidates for an investment.

Companies that have never received funding from TEDCO are also eligible for a Gap Investment.  In fact, this will broaden TEDCO’s reach to high-growth companies that have not had a need for TEDCO’s Seed Investment Funds.  These companies can send an executive summary or detailed pitch deck to the Fund Manager listed below and ask for consideration for a Gap Investment.  Companies submitting an executive summary or detailed pitch deck should make sure that they make the case that they meet all of the requirements described in the Investment Focus including, but not limited to, a list of potential co-investors, a summary of five-year projected revenues and EBITDA, 12 – 18 month milestones that will be achieved with investment in the current round, deal terms associated with the current round of investment, and any other information that helps to make the case that the company is a good investment opportunity.

Review Process

The review process for the Gap Investment Fund consists of the following steps:

Initial Selection

For companies that have never received funding from TEDCO but look like they might be a potential fit for the Fund, the review process will start with a phone conversation or a meeting to discuss the investment opportunity in more detail.  TEDCO will already be familiar with its Portfolio Companies, including those that have expressed an interest in the Fund, so it will select those that it feels are most appropriate for further consideration.

 Due Diligence Phase

Companies that are identified through the Initial Selection process will enter due diligence.  The length of the Due Diligence Phase will vary significantly based on several factors including how well TEDCO knows the company, the company’s ability to provide requested information, the achievement of certain milestones by the company, the company’s success with commitments for matching funds, and the availability of investment capital, to name a few.

 TEDCO will conduct its due diligence in accordance with its Due Diligence Process/Checklist.

 Recommendation Phase

Companies that successfully complete the Due Diligence Phase will be recommended for investment, subject to the availability of capital.  TEDCO staff conducting the due diligence will generate a recommendation memorandum that will be reviewed by a Gap Fund Investment Committee, which will make a final recommendation to TEDCO’s CEO.

 Closing Phase

Once approval has been obtained from TEDCO’s CEO, the TEDCO staff member leading the deal will conclude any final negotiations and complete the closing.

Fund Manager

Stephen Auvil
Senior Vice President
Technology Transfer & Commercialization
sauvil@tedco.md