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What financing and incentive programs are available to emerging tech and life sciences businesses in New Jersey?

Funded by internal resources (currently at $2 million), these programs offer growth capital to be leveraged with angel investments and venture capital investments. Funding under these programs can be used for key hires, product iteration/rollout, product enhancement or marketing/sales.

1. Angel Investor Tax Credit Program

All investors that invest in a qualifying NJ emerging technology business may benefit from a tax credit through the Angel Investor Tax Credit Program.

Dollar Amount:

10% of the qualified investment made in a NJ emerging technology business, up to a maximum allowed credit of $500,000 for each qualified investment

Uses:

Qualified investment in a NJ emerging technology business

Benefits:

Credits against corporation business or gross income taxes, Stimulates investment in NJ emerging technology businesses

Eligibility:

NJ emerging technology business must employ fewer than 225 employees, at least 75% of whom work in New Jersey. See more detailed eligibility criteria below

Application deadline:

Applicants have six months from date of investment to submit an application to the New Jersey Economic Development Authority. Please note that this is a dual application consisting of an investor section and a section for the technology company representative to complete. An application is not considered submitted until both the investor and technology company representative have completed and submitted their respective sections, including payment of the non-refundable application fee by the investor.

Program details:

Up to $25 million of Angel Investor Tax Credit may be approved per calendar year. If the cumulative credits claimed by taxpayers exceed the amount available in a given year, then credits will be applied in the order in which applications are received and complete, starting on the first day of the succeeding calendar year in which Angel Investor Tax Credits do not exceed the amount of credits available.

Eligibility:
To be eligible, the New Jersey emerging technology business must meet the following 4 criteria:

• Employs fewer than 225 full-time employees, at least 75% of whom work in New Jersey

• Does business, employs or owns capital or property, or maintains an office in New Jersey

• Conducts at least one of the following activities in New Jersey:

o Incurs qualified research expenses in the State
o Conducts pilot scale manufacturing in the State
o Commercializes one or more of the following eligible technologies in the State: Advanced Computing, Advanced Materials, Biotechnology, Electronic Devices, Information Technology, Life Sciences, Medical Devices, Mobile Communications, and Renewable Energy Technology.

• Has as its primary business an eligible technology (as listed above.)

• Qualified investments include non-refundable transfers of cash made directly to the New Jersey emerging technology business in connection with at least one of the items listed below. To be considered non-refundable, these items must be held or not expire for at least 2 calendar years from the date of the transfer of cash, with an exception being made for initial public offerings (IPOs), mergers and acquisitions, damage awards for the business's default of an agreement, or other return of initial cash outlay beyond the investor's control.

  • Stock, interests in partnerships or joint ventures, licenses (exclusive or non-exclusive), rights to use technology, marketing rights, warrants, options, or any similar items, including but not limited to options or rights to acquire any of the listed
  • A purchase, production, or research agreement.

• Credits may be treated as an overpayment and refunded (but no interest on the overpayment will be paid.), For corporate taxpayers, the tax credits may be carried over up to 15 tax years following the tax year for which the credit was allowed. Individuals cannot carry forward the tax credits.

• Credits may not be carried forward in a tax year in which the taxpayer was a target for corporate acquisition or in which the taxpayer was party to a merger or consolidation unless the taxpayer can demonstrate to the New Jersey Division of Taxation the identity of the acquiring corporation.

• Credits may be claimed on the taxpayer's New Jersey tax return in the tax year applicable to the effective date of approval.

• Applications should be submitted by the angel investor entity, if applicable, or the individual angel investor. The New Jersey emerging technology business also will need to fill out a section of the application and provide certain information with the submission, though the angel investor is responsible for all application information.

Fees apply and are non-refundable unless otherwise stated.

* Any proposed amendments to the program rules can be found on the Proposed New Rules/Amendments page

To answer any questions you may have, please first consult with the program videos and links provided above, including the “Frequently Asked Questions.” If this does not answer your questions, please email your questions and contact information to AngelTaxCredit@njeda.com.

https://www.njeda.com/technology_lifesciences/angel_investor_tax_credit_program

2. Technology Business Tax Certificate Transfer (NOL) Program

Administered by the EDA, this program enables unprofitable technology and biotechnology businesses with fewer than 225 US employees (including parent company and all subsidiaries) to sell unused percentage of Net Operating Losses and Research and Development Tax Credits to unaffiliated, profitable corporate taxpayers in New Jersey for at least 80 percent of the value of the tax benefits. This allows unprofitable technology and biotechnology businesses to turn their tax losses and credits into cash.

Program Details:


• Up to $60 million is available annually, with $10 million set aside for businesses located in Innovation Zones (any unused balance of the $10 million set-aside is reverted to the general program pool)

• Only technology and biotechnology companies whose primary business involves the provision of a scientific process, product or service are eligible

• An eligible company must own, have filed for, or have a license to use protected, proprietary intellectual property (defined as a patent or a registered copyright)

• An eligible company cannot have had positive net operating income on either of its last two full-year income statements according to GAAP. In addition, an eligible company cannot have a parent company with positive net operating income, or be part of a consolidated group of affiliates for federal income tax purposes with positive net operating income

• An eligible company must have at least one full-time employee working in New Jersey if incorporated or formed less than three years, five full-time employees in New Jersey if incorporated or formed more than three years but less than five years, or 10 full-time employees in New Jersey if incorporated or formed more than five years

• An eligible company must have financial statements for the two most recent full years of operation compiled, reviewed or audited by an independent CPA firm and prepared according to
US GAAP.

Fees apply and are non-refundable.

Program Video Presentations: https://youtu.be/ed-wbT2tu1w

Program Links:

* Any proposed amendments to the program rules can be found on the Proposed New Rules/Amendments page

Please email your questions and contact information to NOL@NJEDA.COM. All emailed questions and their responses are considered public knowledge. The questions and responses are reviewed by the deputy attorney general's office and posted in the program's “frequently asked questions” (link above).

https://www.njeda.com/technology_lifesciences/Technology-Business-Tax-Certificate-Transfer-(NOL)

3. NJ Founders and Funders

NJ Founders & Funders is organized by the NJEDA Technology & Life Sciences (TLS) team to facilitate warm introductions between emerging New Jersey TLS companies and sophisticated angel & institutional investors. Our mission is to help grow the TLS ecosystem to support innovative NJ companies. Hosted twice per year, venture capital investors are invited to meet with a select group of companies for 10-minute, one-on-one sessions to discuss strategy, business models and funding opportunities.

• Warm Intros to Angels & VCs  - Connected based on company profile and investment thesis
• 1:1 Q&A Sessions - Smart, honest feedback on your business model, strategy and technology
• Meet the Tech Ecosystem - Meet fellow entrepreneurs and key stakeholders

https://application.njeda.com/tls/

4. NJ CoVest Fund

The NJ CoVest Fund provides seed funding to New Jersey technology and life sciences companies to further commercialize their technology and scale revenues. Investments made through the NJ CoVest Fund align with the EDA’s ongoing strategy of supporting New Jersey’s entrepreneurial ecosystem.

Program Details:
• Investment in the form of Convertible Notes with Warrants.
• Individual Note amounts between $100,000 - $250,000 based on match funding and EDA analysis of company financing and operations, management team and experience, the product and target market, as well as investor type and involvement.
• Protected intellectual property required as a negative pledge and springing lien in event of default.
• Note matched $1 (EDA) to $2 (Qualified Outside Investment).
• Note can represent no more than 33% of current financing round.
• Minimum round size of $300,000 (including NJ CoVest Fund investment).
• Company must have raised some financing previously.
• Maximum EDA debt exposure of $1.75 million (NJ CoVest Fund and Edison Innovation Fund).
• No restriction on participation in EDA incentive programs.
• Company must present and receive positive review from EDA’s Technology Advisory Board
(TAB).

Financing Instrument:
• Convertible Promissory Note - 10-year maturity - 3% interest rate - 50% warrant coverage

• Convertible - the EDA will have the right to convert its debt to equity in a future financing round raising $1,000,000 or more under the same terms as any other investor in the round.

• Repayment – 10-year maturity. No payments for first seven-years. If the Note has not converted to equity by beginning of year 8/month 85, repayment of principal plus interest payments for the remaining three-years to full amortization.

• Interest – 3% interest rate accrues and capitalized annually.

• Warrant – the EDA will receive warrants in consideration for the financing. The warrants will have a 10-year life and be on the EDA's standard warrant form. The amount of warrant coverage is 50% of the EDA’s Note amount. The strike price on the warrants is the same per share price of the match funding or will be penny warrants if no strike price is set at matched financing event.

• The Note will require a negative pledge on the company’s technology/intellectual property and a lien will spring on this technology/intellectual property in the event of default.

Eligibility Guidelines:

Company:
• Early Stage in technology or life sciences industries.
• Structured as a C-Corporation or a LLC with Unit Structure.
• Maintains a Board of Directors/Advisors.
• Located in physical commercial office, co-working or incubator space in New Jersey.
• 75 percent of full time employees spending at least 80% of their time in New Jersey.
• A minimum of 2 full time founders that have made some financial investment in the company.
• Company must be registered to do business in New Jersey and in good standing.

Business Model:
• Product-based.
• Capital efficient and scalable - revenue growth will significantly outpace the expense growth and funding requirements.
• Large, identifiable target market.
• Owner of proprietary intellectual property protected by either copyright with the US Library of Congress or nonprovisional patents in process or approved and recognized by the USPTO.
• Some sales revenue from, at minimum, three commercial customers. Research, grants, consulting, or other any other method that could be considered service based revenue excluded.

Outside Investment:
• Matching funds from a minimum of two investors.
• Investor must be an investment entity (Venture Capital Fund, Angel Fund, Family Office, Investment Partnership, or LLC) or an individual member of an organized investment group. Funds raised from employees or family members will not be considered.
• Can be in form of convertible debt or equity financing.
• Investor funds to be matched by the NJ CoVest note must have been received by the Company within 90 days prior to application submission.

Commitment to New Jersey:
• Company agrees to remain headquartered with 75% of full time employees in NJ for five years after conversion or repayment of the Note or be subject to investment claw back penalty.

Fees apply.

Division of Taxation Tax Clearance Certificate required. Certificates may be requested through the State of New Jersey’s Premier Business Services (PBS) portal online.

• Under the Tax & Revenue Center, select Tax Services, then select Business Incentive Tax Clearance.
• If the applicant’s account is in compliance with its tax obligations and no liabilities exist, the Business Incentive Tax Clearance can be printed directly through PBS.

www.njeda.com/njcovest

5. Edison Innovation Fund

The Edison Innovation Fund seeks to develop, sustain, and grow technology and life sciences businesses that will lead to well-paying job opportunities for New Jersey residents.

Financing under the following programs is subject to available funding:

Edison Innovation Angel Growth Fund: Angel supported technology companies with minimum trailing 12 month commercial revenues of $250,000 may be eligible for up to $250,000 in subordinated convertible debt financing. Growth capital through the Edison Innovation Angel Growth Fund can be used for key hires, product rollout, product enhancement, and marketing/sales. There is a 2:1 angel match funding requirement that must be received within 90 days prior to application.

Edison Innovation VC Growth Fund: Venture capital (VC) supported technology companies with minimum trailing 12 month commercial revenues of $500,000 may be eligible for up to $1 million in subordinated convertible debt financing. Growth capital through the Edison Innovation VC Growth Fund can be used for key hires, product rollout, product enhancement, and marketing/sales. There is a 1:1 VC match funding requirement that must be received within 90 days prior to application.

Edison Innovation Growth Stars Fund: Angel and/or VC supported technology companies with minimum trailing 12 month commercial revenues of $2,000,000 may be eligible for up to $500,000 in subordinated convertible debt financing. Growth capital through the

Edison Innovation Growth Stars Fund can be used for key hires, product rollout, product enhancement, and marketing/sales. There is a 1:1 match funding requirement that must be received within 90 days prior to application.

6. Venture Fund Investments

EDA forms collaborative partnerships with venture capital fund managers active in New Jersey’s Technology and life science community. Our venture partners leverage EDA investment to increase funds available for emerging technology & life sciences companies to grow and create jobs in the State.

Dollar Amount:

EDA’s average historical commitment is $2.6 million since program inception. Qualifying commitments may be up to $10 Million, or 10% of the total fund size.

Uses:

Investment in early-stage technology and life science companies with revenues, generally, less than $3 million

Benefits:

• Investment capital for approved partners
• Build strategic relationships in the technology and life sciences community
• Support growth and job creation for NJ companies

Eligibility:

• See venture fund policy and investment guidelines below
• Application submission required for consideration

EDA Venture Fund Investment Activity:

To date, EDA has committed over $48 million to 14 venture capital funds since 1999. Cumulatively, these partner funds invested approximately 6x the EDA’s investment into more than 60 New Jersey early-stage technology and life science companies. Including other third party investors, companies in the EDA venture fund portfolio have received $2.3 billion of funding and employed almost 2,000 full time employees as of December 31, 2016.

Investment Portfolio:
Current and historic venture fund partners include:

• Edisonpartners https://www.edisonpartners.com/
• ff Venture Capital: http://ffvc.com/
• Milestone Venture Partners www.milestonevp.com
• Newark Venture Partners: http://newarkventurepartners.com/
• New Spring Capital: https://newspringcapital.com/
• NextStageCapital: https://newspringcapital.com/
• OMNICaptial:  http://www.omnivc.com/
• OSAGE Venture Partners:  https://osagepartners.com/osage-ventures-partners/
• Quaker Partners:  http://www.quakerbio.com/
• Tech Council Ventures: https://techcouncilventures.com/

Evaluation Criteria:

As necessitated by the long-term investment horizon of venture capital, EDA seeks to maintain active investment partnerships deploying capital across market cycles. As part of the Edison Innovation Fund, EDA has implemented guidelines to ensure that its venture capital investments consistently support the success of emerging technology companies in New Jersey. These guidelines set forth a strategy for staff to review and assess qualifications for venture capital fund commitments in a consistent and equitable manner.

Venture fund managers seeking EDA investment will apply through the online application. Applications will be assessed and scored using the guidelines outlined below:


1. Quality of leadership: Consideration is given to senior leadership’s length of experience together as an institutional fund manager and investor, as well as, the relevance of experience to the targeted strategy.

2. Depth of Resource: Consideration is given to the size and experience of additional team, as well as, the current staffing processes used in order to effectuate the strategy. Succession / continuity planning is considered.

3. NJEDA Partnering: The prospective manager is assessed on its ability and willingness to serve as a strategic partner to EDA, support the Technology & Life Sciences ecosystem in New Jersey and locate in the State.

4. Sourcing: The prospective manager is assessed on its ability to source and track relevant and non-traditional deal flow to maintain an advantage in effectuating the stated strategy, with particular emphasis on New Jersey.

5. Strategic Focus: In order to align with EDA objectives, the target fund should be focused on early-stage companies with less than $3 million in trailing twelve month revenue prior to investment, diversified across technologies.

6. Geographic Focus: The investment offering will be assessed according to the percentage of the total fund identified for investment in New Jersey and to the breadth of exposure within the State. Consideration may be given to funds with a regional or national approach, emphasizing investment in NJ.

7. Consistency of Strategy: The manager’s history and degree of past success executing the targeted fund strategy is indicative of its understanding and ability to mitigate associated risks, particularly in an institutional fund structure.

8. Performance History: Investment returns on individual funds are reviewed on an absolute basis and relative to peers. Returns across prior funds should be consistent. Volatility of returns within funds should be tolerable relative to the broader asset class. Consideration will be given to first time institutional managers based on individual principal track records.

9. History Investing in New Jersey: The amount invested to date in New Jersey by the manager on an absolute basis and relative to peers will be considered in conjunction with the investment return on New Jersey -based companies and the ability to create jobs in the State.

10. Fees and Expenses: The manager must represent a budget for the target fund and General Partner. Fees and expenses will be compared to peers and should be sufficient only to effectuate the stated strategy of the investment offering under consideration.

11. Incentive and Alignment: Carry (performance incentive) as a percent of profit sharing between the LP and GP should be comparable to peers and properly aligned for the relative risk and reward of the targeted strategy. Within the firm, carry ownership should be equitably spread among the team with consideration for contribution to the success of strategy. The General Partner commitment should be personally meaningful and significant relative to the total fund size.

12. Governance: Governance terms should sufficiently protect Limited Partners. EDA requires a seat on the Limited Partner advisory board for all investments in excess of $1,000,000.

13. Fundraising Status: Stage of fundraising will be considered with respect to the manager’s ability to effectuate the strategy. Participation by other institutional Limited Partner’s in the fund offers an additional validation signal to EDA and helps effectuate the value-add.

At all times, the potential for a limited partnership investment from EDA, is subject to the available resources for a 10-15 year fund life.

Application and Policy:

https://www.njeda.com/venturefunds

7. Grow New Jersey

See article: "What financing and incentive programs are available to large businesses in New Jersey?"

8. Incubator and Collaborative Workspace Initiative

One of the pillars of Governor Murphy’s vision of a stronger fairer economy is recreating New Jersey as a home for innovation. Fostering emerging businesses and helping them overcome barriers to commercial success is critical to achieving that vision.

The Incubator and Collaborative Workspace Initiative supports entrepreneurs by providing rent support grants. In addition, this program provides collaborative workspaces with a new tenant attraction tool.

What is the Incubator and Collaborative Workspace Initiative?

• Grants that support rent of early stage technology and life science companies in New Jersey collaborative workspaces.

• EDA’s grants will cover rent payments for 2, 4 or 6 months.

• A collaborative workspace must match EDA’s grant to the tenant company on a 1:2 basis (e.g. if EDA provided a grant for 2 months, the collaborative workspace would need to provide a grant for 1 month).

• The start-up tenant company must commit to continuing to work from the collaborative workspace (paying rent) for a period no less than EDA and the collaborative workspaces combined months of support.

• EDA will provide an additional month of support if the workspace is located in an Opportunity Zone, affiliated with a hospital system or New Jersey university, or is recently established. These months can be added together for a total of three additional months. These months do not count toward the workspace match requirement or the tenant commitment requirement.

What is required of the workspace?

Step 1: Become an Approved Site

A collaborative workspace must first qualify as an approved Incubator and Collaborative Workspace Initiative partner site through a simple online application. To qualify for the program, a workspace needs to:

  • Be located in New Jersey
  • Have A Division of Taxation Tax Clearance Certificate. Certificates may be requested through the State of New Jersey’s Premier Business Services (PBS) portal online.
  • Have an NJ Business Registration Certificate
  • Have a minimum of 5 unique paying tenants over the last 2 years * (Tenants must have an arms-length relationship with the collaborative workspaces owners and operators)
  • Have an operating cost (e.g., rent or mortgage or internal corporate charge-back)
  • Offer at least one type of work space - private office space, hot-desks or dedicated desks
  • Commit to hosting at least 10 innovation ecosystem building events in a year. Examples of ecosystem building events include: meet-ups, speaker series, office hours for lawyers/ accountants/ consultants/ investors)
  • Certify that the workspace charges rent to tenants and that the rent that would be charged to the startup and supported by EDA is market-rate.
  • Commit to matching EDA’s grant to the tenant company on a 1:2 basis

*Workspaces formed less than 90 days prior to the approval request may qualify for the program on a case-by-case basis, if they have at least 3 signed prospective lease agreements

Step 2: Apply for a Grant

Once a workspace is approved, it can start to market the rent support program to prospective tenants. When the workspace identifies a start-up it would like to offer support to (e.g. provide 1, 2 or 3 months of rent support), the workspace can apply for an EDA grant.

Online grant applications will include basic information about the tenant company (see below) and a signed lease (can be contingent on grant funding) to start within 30 days +/- from grant application submission date).

What is required of the tenant?

Because the grants are intended to support early-stage life sciences and technology companies, the program requirements are very straight forward. To be eligible, a company must:

• Be registered to do business in New Jersey
• Provide a two-page executive summary of their business

In addition, the company must certify that they:

• Are a technology and life sciences company
• Are applying within three years of earliest date of formation
• Have fewer than 10 employees (1099 or W2)
• Have less than $1,000,000 in trailing 12-months gross sales from date of application submission
• Have at least one full-time NJ employee that will be working in the facility (1099, W2, and common law employees are eligible.
• Have not previously utilized another collaborative workspace in NJ (use of out-of-state collaborative workspaces does not disqualify the tenant)
• Commit to working at the facility beyond the grant term for 1x the length of the total grant. (For example, if the grant covers 2 months of rent from EDA and 1 month of rent from the collaborative workspace, the company must commit to an additional 3-months beyond the term of the grant.)

How to Apply:

The application for the Incubator and Collaborative Workspace Initiative is still under development. When completed, the application will be accessible from this page, so please continue to check this page for more information.

Questions?

If you have any questions about the Incubator and Collaborative Workspace Rent Initiative, please email icwri@njeda.com.

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