The Murphy administration rolled out its latest economic incentive program on Tuesday – which mirrors several aspects of the governor’s proposed state-run venture fund – aimed at luring business startups and entrepreneurs to New Jersey.
Called NJ Accelerate, the pilot program allows the New Jersey Economic Development Authority to put $2.5 million on the table to attract accelerators, or businesses that have used them, into the state.
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 hash out and refine their business proposal, which they then eventually pitch, according to NJEDA Executive Vice President Kathleen Coviello, who is running the program.
Both the EDA and the accelerator that the entrepreneur graduated from would jointly finance the startup dollar for dollar – capped at $250,000 from the state – if they move to New Jersey within six months of finishing the accelerator program.
EDA financing is provided as a 10-year note, which does not have to be paid back for seven years.
“We’re really giving the company a long runway to grow the business,” Coviello told NJBIZ.
The EDA is entitled to warrants, also known as securities, for half of the loan they commit to the company, which means that the state is guaranteed to receive some type of revenue if the company is sold.
“We’re helping these young companies, and we have a possibility – if the company makes it huge one day – that we could get a return of the share,” Coviello said.
Startups would also be eligible for up to nine months’ rent from the state if the business moves into one of the 18 collaborative workspaces taking part in the NJ Ignite program.
Another feature of NJ Accelerate calls for the state to sponsor accelerator events in New Jersey, from any such business around the country, with the EDA matching that business dollar for dollar, up to $25,000 per event.
Accelerators would be vetted by the EDA to ensure their legitimacy, Coviello said.
“The accelerators have to show their track record of selecting high-performing companies and have a very high bar to get into their accelerator program,” she said.
Gov. Phil Murphy unveiled proposals for a similar economic incentive on a much larger scale in October 2018—the $250 million, five-year Innovation Evergreen Fund.
That proposal calls for the state to auction off tax credits, and then, alongside private venture capital firms, use the proceeds to jointly finance startups eyeing a move into New Jersey. The state would match private investments dollar for dollar, and the returns would go back into the fund – effectively making it self-sustaining.
While it has met a cold reaction from legislative leadership, which it needs to approve a bill creating the program, Senate President Stephen Sweeney, D-3rd District, just this week threw his support behind the evergreen fund, clearing a major hurdle for the governor.
Meanwhile, the EDA’s $1 million micro-business loan program, effectively acts as a pilot program for another of Murphy’s sought-after policies: the state public bank. Like with the aim of the public bank, the incentive connects loans and investment dollars with businesses from communities typically overlooked by private banks.
Coviello said that she hopes for the heavy-hitter accelerators to get involved in the program, ranging from Techstars to Morgan Stanley.
And, she hopes for the involvement of Newark Venture Partners, the state’s largest accelerator, which was started in 2015 by Audible Founder and Executive Chairman Don Katz, and sits across the street from the audiobook company’s Newark headquarters.
“It provides very good benefits to attract companies from accelerators,” said James Barrood, former chief executive officer of the New Jersey Tech Council. “Because the reality is that there are not as many accelerators as there used to be, and the top ones may not be located locally.”
“If a company is accelerated on the West Coast and they’re in biotech or pharma or health tech, it might make good sense for them to move to New Jersey because their customers and the talent base can really help them scale more quickly.”