Afghanistan war veterans Ceasar M. Munoz and Jason Smartt aim to upend traditional credit scoring for junior active-duty soldiers who often have no or low credit scores.
The two alumni of West Point, along with co-founder Nitika Nautiyal, created start-up company CreditServe four months ago to match the soldiers with credible lenders who can give the soldiers more favorable, fixed terms and lower interest rates than they can get now.
The entrepreneurs are seeking angel funding totaling $1.5 million by the end of the first three months of 2015, partly to create an algorithm to show that soldiers are statistically better credit risks than their traditional scores reveal, they said. The goal is for the algorithm to take into account factors such as a service member’s deployments, awards, occupational specialty and length of service to produce the new type of credit score.
CreditServe is part of The Bunker, an incubator for startup companies created by military veterans.
The Bunker will be housed in a 25,000-square-foot addition that opened Tuesday next door to 1871’s home base on the 12th floor of the Merchandise Mart — a 50 percent increase in the much-publicized 1871 tech hub’s current size.
At an event Tuesday morning, Gov. Pat Quinn introduced representatives of the firms occupying the new space. The state of Illinois invested $2.3 million from the Illinois Jobs Now program to help get the original 1871 space started, and put in another $2.5 million for the expansion from the Illinois Department of Commerce and Economic Opportunity.
Some were clearly so excited to be there they seemed a little tongue-tied, remembering to thank the governor and 1871 but not mentioning their names or what their firms did.
After Quinn finished prompting many of the firms for details, it was J.B. Pritzker’s turn at the microphone. The technology venture capitalist billionaire was an early supporter of the 1871 hub.
Noting how focused Quinn had been on listing all the companies, Pritzker told the governor: “I know who the next CEO of 1871 should be.” But, he added, “you probably have another job you want to keep for awhile.”
The new space is part of 1871 CEO Howard Tullman’s  plan to support new companies that will disrupt a variety of entrenched industries.
Other incubators to open in the space, though not all at the same time, are:
* Leap Innovations, an education-focused incubator that will engage teachers (including providing working space for them in 1871) to pilot new technologies, including coursework tailored to individual students’ abilities and needs.
* Good Food Business Accelerator, a program for food tech entrepreneurs aimed at expanding the availability of sustainable, locally grown food throughout Chicago.
* The DeVry EdTech Incubator, designed to help startups develop new educational technologies. It offers mentorship, coaching and access to DeVry’s network of educational leaders.
* The Elmspring Real Estate Incubator, supporting startups that leverage technology to create solutions for complex challenges throughout the real estate industry. 1871’s real estate technology incubator space is sponsored by DTZ.
* Impact Engine, an accelerator program to support companies that aim to deal with societal and environmental challenges by providing dedicated programming, including one-on-one mentorship, guest speakers, business workshops and team building exercises.
* WiSTEM, a program for women-owned and operated technology businesses.
The new space will also house four venture-funding firms and companies that have outgrown the 1871 shared space, including OptionsAway and Learnmetrics.
The companies are part of a growing network of resources for Chicago’s entrepreneurs.
For example, Munoz and Smartt came up with their startup idea as part of their coursework in entrepreneurship while pursuing MBAs at the University of Chicago’s Booth School of Business. They also take advantage of resources at the university’s Polsky Center for Entrepreneurship and Innovation. They are set to graduate in June 2015. Munoz, 30, served as a senior communications officer for the U.S. Army’s 2nd battalion, 1st Special Forces mission in southern Afghanistan, while Smartt, 29, served as a U.S. Army tactical and effects coordinator for the 5th Brigade, 2nd Infantry division, based in Spin Boldak on the Afghanistan-Pakistan border.
A beta trial with a soldier who needed a $17,000 loan resulted in the soldier saving $400 a month with a halved interest rate (18 percent, instead of 35 percent) and a three-year loan instead of several loans due over three- or six-month periods.
CreditServe’s target audience likely will realize negotiated interest rates from 10 to 25 percent, the co-founders said.
CreditServe won third place at the Booth School’s “New Venture Challenge” startup competition in May, along with a $10,000 seed-funding prize. The co-founders also have raised $70,000 from friends and family.
Todd Connor, CEO of the Bunker, said Tuesday that the idea is for the 10 to 14 veteran-run companies in the new space to generate revenue, hire people and grow to a point where they will move out after six months of meeting with mentors, strategic advisors and otherwise getting traction in the Bunker.
The first group of 14 startups at the Bunker were chosen from 51 applicants because most were already making money and attracting customers, said Connor, a Northfield native who earned his MBA from the Booth School after serving as a lieutenant in the U.S. Navy aboard the USS Bunker Hill as part of the “Shock and Awe” campaign on Baghdad, Iraq.
Indeed, the startups will be expected to show results quickly because the Bunker “is not a co-working space or a space to hang out,” Connor said. The companies will be evaluated based on their growth in jobs, revenues, capital investments and ability to remain going concerns that continue to exist for three years or are sold on terms favorable to the founders, he said.
The Bunker’s motto, “Come, Create and Conquer,” is aimed at appealing to veterans’ sense of mission and empowerment, rather than focusing on images of veterans as homeless and unemployed, he said. “We don’t want a pity party. We’re trying to recapture a sense of community. This is a place where you can build a business.”