Rebuilding New Jersey’s Innovation Economy

In Action on Venture Capital

By Nicole M. Sandelier, NJBIA Policy Analyst On Sep 4, 2018

Venture capital is essential for developing the economy of the future. Some of the most successful and prosperous businesses today did not exist 15 years ago, and now, technologies such as voice command software and artificial intelligence are redefining our expectations as consumers and business owners. 

While education and a healthy innovation ecosystem are important for coming up with the new ideas that drive productivity in the 21st century, they do not become a reality without money. Getting innovative ideas out of the lab and into the marketplace requires investors willing to accept a high level of risk for a potentially big payoff. In short, innovation does not happen without venture capital.

National Trends. The United States has healthy venture capital activity levels. Last year, more than 8,000 venture-backed companies received $85 billion in funding. The Pharma/BioTech and Software sectors continued to lead all other sectors in venture capital investment, receiving $12.93 billion and $30.16 billion, respectively. 

Nationally, venture capital investments have increased to rates similar to that of the internet boom.However, a closer analysis reveals there are only a few states that are significantly benefiting from the current tech boom: California, New York and Massachusetts. 

Regional Competition. In 2017, New Jersey received $780 million in venture capital investments.  Regional competitors New York and Massachusetts far surpassed other states in the region, generating  $12.26 billion and $8.97 billion, respectively.  

Additionally, regional states increased the amount of investments at a faster rate than New Jersey. The Garden State ranked 7th in the region, with a 4 percent increase in venture capital investments from 2004 to 2017. National leaders, New York and Massachusetts, experienced a whopping 1,910 percent increase (1st in the region) and a 78 percent increase (4th in the region), respectively, during the same period. 

New Jersey at a Crossroads. Throughout New Jersey’s long history, the state has achieved many notable accomplishments, including earning its reputation as the nation’s center for innovation.  In more recent years, however, states like California and Massachusetts have passed New Jersey and have taken the lead as national innovation hubs.  

While venture capital investment is only one component in strengthening an innovation ecosystem, it is an essential driver for economic growth.  In order for New Jersey to regain its stature as the “innovation state,” it must find ways to increase venture capital investment.  

Investment in venture capital through tax credits and business incentives will stimulate the development and creation of businesses that help drive innovation. 

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