State building Murphy’s innovative economy ecosystem
When more than 100 entrepreneurs and investors met on June 1 at the New Jersey Institute of Technology in Newark for the 12th Founders and Funders event, it not only marked the first such in-person gathering in nearly two years, but the continued realization of the New Jersey Economic Development Authority’s efforts to grow the state’s innovation economy. “It really started organically out of the need we heard from both sides, from the founders and the funders,” Kathleen Coviello, NJEDA’s Chief Economic Transformation Officer, told NJBIZ.
Coviello explained that the NJEDA has a portfolio of venture funds the agency backs and requires those funds to then invest in New Jersey-based companies. She said that that the managers of those funds consistently ask for help identifying strong New Jersey entrepreneurs while also hearing from entrepreneurs that they need more capital to expand their businesses.
“After hearing this a repetitive number of times, we said ‘we think we could be a matchmaker here,’” said Coviello. “That in-person experience and opportunity to hear the live pitch from the entrepreneurs, even if it’s only 10 minutes, is really critical to capture the attention and help understand the business model from the investors.”
The event works in a speed dating format, with about 35 companies and more than 25 investors rotating in 10-minute matchmaking pitches. In total, there are 12 sessions with a 30-minute networking break. The June 1 event resulted in 293 individual meetings.
“I’ve been really pleasantly surprised to see the support from the investor community,” said Tim Rollender, NJEDA Director of Venture Programs. “It is super easy to get investors. They will fill up faster than the companies do.”
Rollender explained that the NJEDA team tries to pair companies with the most relevant investors. “We’re not going to have a life science investor meeting with a food tech company, or vice versa,” said Rollender. “Because we want them to have the greatest chance of getting the info they need and hopefully funding down the road.”
Coviello said the process produces follow-ups and connections that may pay dividends later. “When we engage with the entrepreneurs for these events, we say to them, ‘you may not walk away with a check, but it very well could lead to a check today. It could lead to a check down the road,’” said Coviello. “’But be prepared to get value in other ways, be it connections, be it introductions, or be it advice.’ And it all just kind of happens organically when we’re at the event.”
While Coviello pointed out that the event is not quite like “Shark Tank,” with entrepreneurs walking out with financing, historically, 10% of the companies have been successful at raising funds after one of the events, which is a strong number in the angel or entrepreneurial world.
“It’s great to be able to make these warm introductions between these entrepreneurs and these investors that might otherwise not happen in the wild,” said Rollender. “It’s a great opportunity where we are able to connect these different parties.”
“This is something that we do to support the innovation ecosystem in the state and help it grow,” Coviello said.
Nurturing that innovation ecosystem is precisely the mandate laid out by Gov. Phil Murphy, hoping to recapture New Jersey’s role as a leader in innovation while also creating the most diverse and inclusive such ecosystem in the U.S.
In March, evidence of those efforts materialized as the state cracked the top 10, ranking ninth in the nation, based on venture capital dollars invested per state. According to PitchBook, innovation-focused companies in New Jersey secured $5.5 billion in 219 deals in 2021, which was up from $1.7 billion over 154 deals in 2020. New Jersey’s ranking jumped three spots from 2020, and seven spots from its #16 ranking in 2013.
“We’re very encouraged to see the VC community invest in New Jersey startups on a scale we haven’t seen in decades,” Murphy said. “It’s well-known that New Jersey is the birthplace of innovation, but investors are clearly showing that our state is the future of innovation as well.”
“In addition to our spot within the Top 10 spot for venture capital dollars, we are also seeding companies of all sizes choosing to benefit from all that New Jersey has to offer,” said NJEDA Chief Executive Officer Tim Sullivan. “This, in turn, will lead to the creation of thousands of jobs and bring in even more investment dollars in the coming years.”
Coviello said that while many states are focused on innovation, she believes adding the lens of diversity to what the NJEDA is doing puts New Jersey in a unique position.
“The governor’s economic development plan clearly sets out a strategy for making New Jersey the most diverse innovation economy in the country,” she said. “Our geography is diverse. You can go from the shore to the mountains. We have ports that make us uniquely accessible. We have a coastline that makes us perfectly positioned for our offshore wind initiatives. So, we have diversity in our landscape. We want to make sure that we have diversity in our entrepreneurs and diversity in our investors as well.”
An example Coviello cited the New Jersey Gold Seeds chapter, which is a network of angel investors focused on investing in women-led businesses, in collaboration with First Lady Tammy Murphy. She said the NJEDA is also working on starting up similar funds for Black and Latino-led businesses.
“Diversity is at the front and center of all we’re doing for entrepreneurs, for investors, for types of industries where it’s laser-focused on the strategic sectors that we’re working on that are named in the governor’s plan,” said Coviello.
During the conversation with NJBIZ, Coviello and Rollender named a series of initiatives and projects that the NJEDA believes will continue that effort toward fulfilling the governor’s mandate.
At the top of that list is the establishment of the New Jersey Innovation Evergreen Fund (NJIEF), which is designed to create the conditions necessary for entrepreneurs to succeed. The fund, created by the Economic Recovery Act of 2020, is expected to launch this year, establishing a platform for businesses to maximize investment opportunities by leveraging public and private funds to invest in New Jersey-based companies. Under the NJIEF, the state will become an equity investor in startups deploying up to $600 million into companies alongside venture capitalists.
“The New Jersey Innovation Evergreen Fund is a groundbreaking public-private partnership that will fuel our innovation economy by attracting entrepreneurs and venture capital to the state,” Murphy said. “The NJIEF draws on the strengths of New Jersey’s world-class corporate leaders to create a steady stream of investment and expertise that will nurture the next generation of innovators. By fostering investments in entrepreneurship and start-up companies, we are driving job creation and economic growth for New Jersey.”
Another successful initiative has been the state’s Angel Investor Tax Credit Program, which was enhanced by the ERA, increasing available tax credits from $25 million to $35 million. Last year, the NJEDA approved a record-breaking 559 Angel Investor Tax Credit Program applications, a nearly 400% increase over 2020.
NJEDA also launched an accelerator partner program.
“We’ve started kind of this slow and steady cadence where we partner with the best in-class accelerators,” said Coviello. “And when a company graduates from those accelerators, we can provide match-funding and free rent for them to locate in the state.”
NOL and HAX
Another accelerator project that has garnered a lot of excitement in the innovation space was bringing Princeton-based venture capital firm SOSV’s acclaimed HAX hard tech startup development program to Newark, which was selected as the location after a competitive process. SOSV has invested $25 million over the next five years in the program, which the NJEDA has matched. Coviello hinted at another announcement on the horizon regarding SOSV’s site in Newark.
Last month, the NJEDA once again opened applications for its program commonly known as the Net Operating Loss Program, which is allows early-stage technology and life sciences businesses in New Jersey to sell a percentage of their net operating losses and unused research and development tax credits for cash to unrelated profitable corporations.
Applications for that program are being accepted through June 30.
“Innovative New Jersey companies will be able to benefit from enhancements made to the NOL Program by the ERA as they work toward commercialization,” said Coviello. “Connecting early-stage businesses with access to non-dilutive funding and helping them fuel their growth are key to achieving Governor Murphy’s goal of recapturing New Jersey’s role as a leader in innovation. We look forward to supporting even more young companies as a result of expanding this critical program.”
Coviello also noted that $15 million of the $75 million allocated for the program will be reserved for eligible companies within the state’s three Innovation Zones of Newark, Camden, and New Brunswick, and/or woman- or minority-owned businesses.
Also in May, the NJEDA issued a request for information seeking insight on the creation of a physical innovation center dedicated to financial technology in New Jersey.
Sullivan said that the creation of new innovation-centric spaces is an important part of the efforts to build New Jersey’s innovation economy.
“Gathering insights into how a fintech innovation center could contribute to the economic vitality and quality of life in the state will help us identify best practices and innovative ideas for developing a successful center that makes sense for New Jersey in terms of its long-term economic competitiveness,” Sullivan explained.
Beyond the events, projects, initiatives and funding, Coviello said that the NJEDA is also simply trying to get the word out about what New Jersey has to offer. “We are still trying to increase our reach to folks that maybe just aren’t in the traditional avenues so that they know that we have the resources to support their growth,” said Coviello.
While Coviello said state officials were happy to see New Jersey break the top 10 for venture capital dollars invested, they are shooting even higher. “We want to see us in the top five,” said Coviello. “We have a very clear vision from the governor on down and we’re trying to put those metrics in place.”