The New Jersey Economic Development Authority on July 14 unveiled the first two companies to benefit from the expanded version of Angel Investor Tax Credits, which helps investors recoup some of the financial losses incurred from investments in budding technology and life-sciences startups.
Under the $25 million program, investors can sell tax credits for up to 20 percent of investments into certain startups in the state, or 25 percent for investments in low-income communities, federal opportunity zones or businesses owned by women or people of color.
“Keeping money flowing to the innovation sector during the coronavirus pandemic is critical to the fiscal strength of our economy,” Rachel Goemaat, a spokesperson for the NJEDA, said in a statement. “We anticipate that businesses will continue using this program as a tool to attract capital as they navigate this new, post-COVID economy.”
The total amount is capped at $500,000, and the money investors receive by selling credits is a guaranteed amount they will recoup in the event that the investment fails.
In April, the NJEDA rolled out a COVID-19 relief program called the Entrepreneur Guarantee Program. Under this scheme, the agency is setting aside $5 million to provide loan guarantees – or collateral – for investments made as of March 9 when Gov. Phil Murphy declared the state’s 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, said in an interview. “They’re trying to de-risk on the downside and provide greater incentives on the upside.”
Bark Biome – which does business as DIG Labs and produces pet health technology, and produces and sells canine supplements – received $150,000 in private investments, and its investors were approved for a $37,500 tax credit. “We were really lucky, because our investments were committed before COVID-19,” Tara Zedayko, DIG’s chief executive officer, said in an interview. The company is one of the first two participants in the expanded Angel Investor program.
Had there not been a pandemic, Zedayko said, “the biggest difference would be access to additional funding … just given the tightening of cash flows.”
She noted that the pet care market is booming now with workers at home fostering and adopting pets. “The pandemic has allowed us to grow our business in a scalable, sustainable fashion. So it’s allowed us to really take a pause and rethink our beck-end architecture, our infrastructure, so that we are set up to a sustainable scale.”
The second company, biotechnology firm Elucida Oncology, had received a $140 investment, and its investors were approved for a $28 tax credit.
Similar programs meant to attract investors – like the state’s decades-old Net Operating Loss credit program – are 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 can acquire tax breaks for research and development that can be sold for at least 80 percent of their value, capped at $15 million per business.
“Some investors are sort of sitting by the sidelines and watching. Some are focused on their existing profits and making sure those companies survive,” Debbie Hart, chief executive officer and founding president of the state’s life science and biotech trade group BioNJ, said in an interview. “That’s why they want to encourage it, because it’s far too infrequent.”
An executive at one of the frequent buyers of NOL tax credits, Nutra-Med Packaging, lamented that investment dollars have been scarce lately.
“Generally, I see businesses conserving cash where they can,” said Kunal Gupta, Nutra-Med’s vice president of operations. “As such, while buying NOLs may be tax-efficient, it does tie up cash for a period of time. And during this period of uncertainty, a strong cash reserve can mean the difference between a business’s survival or demise.”
Goemaat pointed out that the program “has always been one of our most popular innovation-focused programs” at the NJEDA. Gov. Phil Murphy has extended the application deadline by three months, from June 30 to Sept. 30.
The NJEDA also approved a waiver of the physical meeting requirement for another incentive program, NJ Accelerate, which will set aside $2.5 million to attract accelerators, or the businesses that use them, to New Jersey.
An accelerator is a type of fixed-term “cohort program,” spanning 15 to 20 weeks, where entrepreneurs are given access to seed funding, mentoring and technical assistance to prepare and refine their business plans, which they then eventually pitch to investors, according to NJEDA Executive Vice President Kathleen Coviello, who is running the program.
Other programs rolled out under the Murphy administration, such as NJ Ignite, were showing promise during the pandemic, NJEDA officials suggested. Under NJ Ignite, tech and life science startups are eligible for up to nine months’ rent from the state if the businesses move into one of the 21 collaborative workspaces taking part in the program.
The workspace and NJEDA split the costs on a 1:2 basis under the program, meaning that if the NJEDA pays for two months of rent, the workspace would be on the hook for just one month.
Unlike traditional office space, collaborative workspaces are typically designed for startup tenants, which might have fewer than a half-dozen employees, and have limited funds to pay for office space and utilities.
Instead, they share the workspace with other startups, where they can network and share ideas. Many of these office spaces have labs, lounges, showers, and ample free coffee.
The NJEDA’s NJ Bioscience Center – Incubator in North Brunswick recently reached 100 percent occupancy, according to Goemaat.
Many of the participating incubators contacted by NJBIZ reported varying degrees of success in attracting tenants during the pandemic, with or without the aid from NJ Ignite.
Leaders at the Princeton Innovation Center BioLabs, just off Route 1 in Plainsboro, and the 1776 workspace at the Cherry Hill Mall, said they saw a notable drop in interest when the pandemic hit the state in mid-March, but that trend has gradually reversed.
“While interest in the Cherry Hill Mall location took an initial hit, the second half of [the second quarter] saw an uptick in renewed interest for desk and office space, on par with the number of weekly inquiry requests seen prior to the pandemic,” 1776 Cherry Hill Mall Campus Director Scott Poris said in a statement.
Ever since malls were allowed to reopen on June 29, “[p]revious members have been returning” and “we’ve seen interest in the space increasing, and we’ve welcomed at least one new member since July 1st,” Poris added.
“Once the initial shock wore off” people were less hesitant to work at the Princeton Innovation Center, said Director of Operations Beth Rowley. At this point, interest in the center has soared, but the number of new leases actually being signed is roughly the same as pre-pandemic levels, Rowley said.
“It seems like biotech… is a little bit of a bright spot.”
Bret Morgan, co-founder of another approved incubator, the Asbury Park-based Cowerks, said that much of the heightened summer interest has been the result of an exodus of entrepreneurs from New York City. “We generally get very busy during the summer months but this year has been unprecedented with the demand for office space in the area,” Morgan said. “I would attribute this to the pandemic and people leaving NYC.”
Up north, just across the Hudson River in Jersey City, IndieGrove owner Zahra Amanpour admitted that attracting new tenants, especially participants in the NJ Ignite program, has been an uphill battle during the pandemic.
“Indiegrove had the best year it’s ever had in 2019 and 2020 started strong. The overall lack of interest is all due to the pandemic,” she said in an email, saying just one tenant – in March – had shown interest in moving in while participating in NJ Ignite, “but nothing has happened.”
Editor’s note: This story was updated at 9:04 a.m. EST on July 21, 2020, to clarify that the expanded version of Angel Investor Tax Credits program provides and approves tax credits to and for investors for their investments, and not for the companies they invest in.