Capturing Venture Capital to Boost High-Tech Startups

New sources of capital for high-tech ventures bode well for NJ’s innovation economy.

By Joe Cavaluzzi, Contributing Writer On Jun 1, 2022

Innovation trade groups and state government entities attempting to enhance New Jersey’s attractiveness to high-tech startups have several new sources of investment capital to talk about when touting the state’s advantages for high-tech companies and workers.

“It’s an exciting time for New Jersey’s innovation ecosystem as the state continues to pick up momentum from actions taken over the past year,” says Tim Sullivan, CEO of the New Jersey Economic Development Authority (NJEDA).

The NJEDA announced in March that New Jersey had moved up from 12th to 9th in the nation based on venture capital dollars invested per state. Innovation-focused companies in New Jersey secured $5.5 billion in 219 venture capital deals in 2021, up from $1.7 billion through 154 deals in 2020, according to PitchBook. New Jersey’s share of the Northeast market also grew by 1.4 percentage points in 2021 to 5.5%.

“Support for early-stage entrepreneurs and innovation-based entrepreneurial companies is a key underpinning to achieving a robust, diverse and inclusive innovation economy,” according to Commission on Science, Innovation and Technology Executive Director Judith Sheft.

In April, the NJEDA Board approved the creation of the New Jersey Innovation Evergreen Fund (NJIEF), which will leverage public and private capital to invest in New Jersey-based companies. NJIEF will make the state an equity investor in startups deploying up to $600 million into companies with professional venture capital groups. Sullivan says the new fund is a way to ensure that more companies will start, grow and stay in New Jersey by giving them strategic support from aligned corporate partners. The NJEDA designed the Evergreen Fund, established by the NJ Economic Recovery Act of 2020, to incentivize investment in emerging companies, Sullivan says, while creating mentoring, networking and educational opportunities to help position them for success.

The NJEDA also made enhancements to the state’s Angel Investor Tax Credit Program last summer. In addition to increasing tax credits available annually under the program from $25 million to $35 million, the agency doubled the amount of tax credits available per qualified investment to 20%, adding a 5% bonus credit for investments in minority-or women-owned technology business and tech businesses located in an Opportunity Zone or New Markets Tax Credit Census Tract. Last year, the NJEDA approved a record-breaking 559 Angel Investor Tax Credit Program applications, a nearly 400% increase over 2020 representing an injection of more than $100 million in 39 New Jersey businesses, a more than threefold year-over-year increase in investment and tax credit totals.

Sullivan says Gov. Murphy’s goal of recapturing New Jersey’s role as an innovation leader got a boost in September when the NJEDA announced plans for a new entity, HAX LLC in Newark. NJEDA is partnering with Princeton-based SOSV in the endeavor. SOSV is a global venture capital firm specializing in early-stage startup development programs. It focuses on technology that promises the betterment of humanity and the planet, and on cross-border markets, notably in Asia, that are ripe for explosive growth. Establishing the HAX headquarters in Newark delivers to New Jersey one of the most active angel- and seed-stage venture capitalists in the world. To date, HAX companies have collectively raised a total of $1.8 billion, of which $105 million was invested by SOSV.

The NJEDA intends to invest $25 million into HAX LLC. SOSV plans to take 100 companies through the HAX program over five years and invest $25 million in the startups. With an initial investment of $250,000 from SOSV, a company would have the potential to access up to $50 million as follow-on financing to support its growth. SOSV also will provide mentoring at colleges and universities, local manufacturing sourcing, engage in workforce development, and create local advisory boards.

The Commission on Science, Innovation and Technology also works with the state’s universities to share information about available funding and other resources with researchers. “The commission also continues to roll out new grant and technical assistance programs to foster innovation and to support New Jersey entrepreneurs,” Sheft says. “This past year, the commission launched several programs that offer up to $150,000 in grants to help companies in the technology, life sciences and clean energy sectors work toward commercialization. The response from the New Jersey entrepreneurial community to all these programs has been enthusiastic, particularly given the high-demand statewide for grant seed funding from members of New Jersey’s innovation community.”

Keeping talent from going out of state and keeping the flow of venture capital coming in are closely related challenges. The Research & Development Council of New Jersey (R&D Council) is trying to leverage the state’s history of collaboration between government, industry and academia, in order to retain and grow high-tech companies and make sure the talent pipeline doesn’t flow out of state. “Through this history, collaboration and talent, New Jersey has become an ideal incubator for startup and high-tech business development, helping the state to continue as a worldwide innovation leader,” says R&D Council President and CEO Anthony S. Cicatiello. “The R&D Council is proud to cultivate and honor that talent through our programming that supports the state’s current and future innovators.”

Cicatiello cites the governor’s STEM Scholars program, which supports high-achieving New Jersey high-school and college STEM students. “By connecting students with STEM representatives from the research and innovation communities, and highlighting the STEM opportunities in the state, we are setting them on the path to become the next generation of New Jersey STEM professionals,” Cicatiello says. The R&D Council’s goal is for the New Jersey STEM Pathways Network, a strategic public-private alliance established in 2014 by the State Secretary of Higher Education, to be “the connective tissue for high-quality STEM education from kindergarten through college. Bringing together a network of more than 500 cross-sector STEM leaders, through six regional STEM ecosystems, we are supporting STEM passion for students in and out of school through high quality-programming.”

TechUnited, formerly the New Jersey Tech Council, will add to the investment capital going to tech startups this year with $1 million in federal funding it recently received to launch its startup studio, BetterFutureLabs. President and CEO Aaron Price says TechUnited is committed to giving startups in New Jersey “an unfair advantage.” This startup studio will accelerate TechUnited’s BetterX programming in providing financial support, mentorship and valuable corporate relationships. Price credits Representative Bonnie Watson Coleman, D-12th district, and US Senator Robert Menendez, D-NJ, with helping to secure the funding.

Price notes that TechUnited announced three startup challenges this year to address problems in New Jersey’s communities:

BetterConnected Challenge Newark is powered by Audible and focused on accelerating tech startups with solutions for Newark-based Main Street businesses.

BetterPlanet Challenge is powered by PSEG and launched its third annual challenge around decarbonization.

BetterWellness Challenge is powered by RWJBarnabas and Labcorp to grow startups that are building the modern patient experience.

“This is the time to build great companies in New Jersey, keep our incredibly diverse and well-trained talent in the state, and elevate our investment and startup profile nationally,” Price says. 

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