A Nov. 1 deadline is looming for investors to apply for state aid from a $35 million program meant to alleviate some of the fears investors have about putting money behind startups.
The incentive is formally called the Angel Investor Tax Credit, which is operated by the New Jersey Economic Development Authority, an arm of the state government that provides financing to attract business into the Garden State.
Under the incentive, which was expanded by $10 million in January 2020, investors across a variety of startups in New Jersey can receive a 20% guaranteed return on their investment—with an added 5% for investing in startups in low-income communities, or those that are minority- or women-owned.
To qualify, the company that received the investment must employ a maximum of 225 employees, of which at least 75% need to be working in New Jersey.
NJEDA officials said they’re eyeing investments in technology and products surrounding advanced computing, biotechnology, carbon footprint reduction, electronic devices, life sciences, information technology, mobile communications, medical devices or renewable energy, just to name a few.
The 20% or 25% tax break is guaranteed money: It provides a refundable tax credit to investors that they will get back no matter the outcome of the startup.
“So as an example, the one company I invested $670,000 and received a tax credit of $67,000, so that was a nice incentive,” Nascent Enterprises Founding Partner Tony Dimun, which made investments under the Angel program, said in a 2019 interview. “Would I have invested $670,000 or less without the credit? Who knows?”
At the time of the interview, the tax credit was capped at 10% of an investment.
‘De-risk’ and ‘greater incentives’
Last year, the NJEDA rolled out a COVID-19 relief program called the Entrepreneur Guarantee Program. Under this initiative, the agency is setting aside $5 million to provide loan guarantees – or collateral – for investments made as of March 9, 2020, when Gov. Phil Murphy declared the state’s now-lapsed public health emergency.
“What the EDA has done is said ‘we’ll provide a backstop on your risk because we know times are shaky … we’ll guarantee an investment up to a certain amount’ and on the flipside they’re saying ‘we’ll award you, by giving you a tax credit so you can have an additional rate on your return,” Aaron Price, president and chief executive officer of TechUnitedNJ, formerly the NJ Tech Council and organizer of the annual Propelify Innovation Festival, said in an interview last year.
“They’re trying to de-risk on the downside and provide greater incentives on the upside.”
Guarantees are capped at $200,000. According to a 2020 NJEDA report, the state agency has supported more than $2 million in guarantees for investments in 13 separate companies.
Another program, the Technology Business Tax Certificate Transfer Program, or Net Operating Loss Program, which provided $1 billion of funding since its inception 20 years ago, is meant to help companies offset the financial losses that come with research and development.
Under the NOL program – capped at $60 million a year – technology and life sciences businesses, which by design rarely see a profit during the years spent developing their product, can acquire tax breaks for research and development that can be sold for at least 80% of their value, capped at $15 million per business.