Tech Startups Have New Options, NJ EDA Says

The New Jersey Economic Development Authority made several changes that affect funding for tech companies at its meeting January 15, 2013.

The first involves the Edison Innovation Venture Capital Growth Fund. Created in 2011 to benefit emerging technology and life sciences companies, the program provides growth capital to fund uses such as hiring key staff, product marketing and sales.

The program, which provides a subordinated convertible note of up to $1 million for eligible companies, previously included a 1:1 matching requirement only satisfied by venture capital funds, the EDA said. 

The program now allows strategic investments, which can be made by a variety of sources, including commercial or institutional entities, nonprofit organizations or universities.

EDA President and Chief Operating Officer Tim Lizura noted that strategic investors have increasingly become more attractive to emerging companies as they often bring industry expertise in addition to liquidity, access to a more robust customer base, validation to the technology or product and opportunities for operating partnerships.

Strategic investors will be required to be unrelated, arms-length investors, without any common ownership. To be eligible for the program, N.J. companies must have minimum trailing 12 month commercial revenues of $500,000, derived from core business activities, such as the sale of technology products. Companies also must be the developer or owner of protected proprietary technology.

“The EDA’s goal is to ensure our programs are meeting the needs defined by the marketplace, and this enhancement supports the fact that strategic investors have become more and more attractive to emerging companies,” said EDA CEO Michele Brown.

Primarily aimed at companies impacted by Hurricane Sandy, but still of interest to the tech sector, the board also created a new program in partnership with TD Bank that will make capital available to New Jersey businesses at reduced rates.

Through the “TD Bank New Jersey Advantage Program,” TD Bank will provide up to $20 million in financing to companies in 2013, which will be backed by up to $10 million in partial, subordinate EDA guarantees.

This is the first time that EDA will offer subordinate guarantees on term loans and lines of credit.  The TD Bank New Jersey Advantage Program is expected to launch in late January