After the $500 Million Venture Fund Announcement, NJ Tech Industry Reacts

After the governor’s economic speech last week announcing the creation of the Innovation Evergreen Fund, members of New Jersey’s tech community weighed in on the proposal.

The governor presented a general framework of his plan during a recent roundtable event at the offices of Newark Venture Partners, noting that “we have to work with the legislature to get this done.”

The New Jersey Economic Development Authority (EDA), he said, would auction off tax credits to “probably” big companies, mostly companies based in New Jersey. Of course, the credits will only be attractive to companies that have a tax liability in New Jersey.

Calculating the rough numbers, Murphy stated, “we are expecting to get 90 cents on the dollar, or more … so auctioning off $60 million dollars of tax credits a year, with an objective to get $50 million.” This is a five-year program, so the expectation would be $250 million over the five years. The big companies, he noted, will be selected based on the prices they are willing to pay for the tax credits. “We want every penny we can get,” he said.

There is also a second criterion, he noted. This important aspect is “the extent to which they [companies receiving the tax credit] present a plan that they will mentor or help develop a network for the startup culture in the state.”  This is both a hard-science and soft-science approach, Murphy said.

“We take the proceeds and put them alongside private venture money,” a lot of which will come from New Jersey, but “maybe folks who come from out of state, as well.” That $50 million a year, and an equal amount of private venture money, will be put to work on startup companies in New Jersey. “That’s the one prerequisite. It has to be a New Jersey-based entity.” The decisions on investment will be made by the venture firms, “as they should be,” Murphy noted. “And I think we will target the same sectors that we’ve targeted in our master plan.”

Some reactions from members of the New Jersey tech community:

David J. Sorin, Office Managing Partner and Cochair of the Venture Capital & Emerging Growth Companies Practice, McCarter & English

“The important part of the program to me is that this isn’t just about access to money and mentorship. Also, the larger companies will be able to provide insights to the innovators as to what the market needs. One of the biggest problems that innovators and startup companies have is that they produce what they think the market needs, as opposed to what the market thinks the market needs. And, ultimately, the market speaks. This is interesting because the companies in the startup stage that will end up with access to funding will get so much more market intelligence than they could ever get on their own. They just can’t afford it, or they don’t have access. You can’t talk to enough people to figure it out. I think that is one of the elegant aspects of this plan.”

Dan Borok, Managing Partner, Newark Venture Partners

“Attracting more startups to New Jersey would be transformative for the state.  Not only do startups grow jobs and attract young millennial talent, they have a ripple effect for taxable income and revenue.  We are seeing their effects first hand in Newark, where our tech ecosystem is expanding by the day, our companies are growing, and our founders are building a thriving community.

“The State of New Jersey also has much to offer founders, as they set out to build on their innovations. We have an incredibly engaged corporate community ‒ including Audible, Prudential Financial, Panasonic, the NJ Economic Development Authority and so many more ‒ that are invested in seeing our state succeed and supporting technologies that change the way they do business. In addition, we are a short train ride from the corporate resources of New York, with a more manageable cost of living and doing business.

“We applaud Governor Murphy on his announcement today. New Jersey needs to tap into more innovative solutions if we want more innovators to call New Jersey home.”

James Barrood, President and CEO, New Jersey Tech Council 

”The Tech Council, and the technology and innovation community we represent statewide, is excited about the strategic plan and venture initiative released by Governor Murphy today to scale funding to new ventures and growth companies. This aligns perfectly with our own unique efforts to launch Tech Council Ventures, a venture firm now raising its second fund, and JumpStart, an angel network, to ensure more funding for our brilliant entrepreneurs and innovative startups. It is novel and visionary government-led initiatives like the one launched today that will transform the economy and sustain our state’s innovation ecosystem.”

Jay Bhatti, Cofounder and CTO, BrandProject

“The venture initiative by Gov. Murphy and the EDA is forward thinking, and will result in real impactful innovation for the state. I personally can see how many top venture firms will now look to NJ as a destination for strong startups to be based. I would not be surprised if VCs ask their companies to be in NJ vs NYC to take full advantage of the scaling benefits of this program.”

Anne-Marie Maman, President, New Jersey Business Incubation Network 

“The New Jersey Business Innovation Network and its members are very encouraged by the many different initiatives that Governor Murphy has been announcing. We look forward to implementing the programs, and to the impact that they will have on the startup companies in our varied coworking spaces.”

Donald H. Sebastian, President and CEO, New Jersey Innovation Institute

“As NJII looks to assist the State in growing technology hubs, the governor’s new venture match fund is an imaginative and vital program. It is fuel to drive the three-sided relationship among entrepreneurial small firms, large established firms and the venture community that is fundamental to an innovation ecosystem. Small companies have access to capital necessary to sustain them through the scale-up of high-risk technology before it is mature enough to attract the interest of established firms that control the market. Big companies have skin in the game by virtue of their purchase of tax credits, and VCs leverage the state investment ‒ it is a win for everyone.”

Chris Sugden, Managing Partner, Edison Partners

“This new venture program is a much-needed innovation and addition to the entrepreneurial ecosystem in New Jersey. Our firm has called New Jersey home for over 30 years, and we have closed more than 210 technology-based investments, our state is home to more of these companies than any other. In addition, New Jersey has delivered three of our top five exits ever. However, New Jersey remains underserved from an early-stage capital perspective. This program will provide capital to a part of the technology landscape where we see the most need and a large opportunity for growth.”

 Andrew Zwicker, New Jersey Assemblyman

“The program introduced by the governor today is an innovative approach to kickstarting New Jersey’s innovation economy. Auctioning tax credits to large companies, and using those proceeds to provide matching funds that directly invest in emerging companies, creates an ecosystem that is a win-win all around. The end result will be a vibrant culture of investment in the companies of the future that will create high-quality, high-paying jobs; grow our economy; and position New Jersey as a national leader.”

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