How Proposed State Legislation Will Boost New Jersey Startup Companies

How Proposed State Legislation Will Boost New Jersey Startup Companies

The New Jersey state legislature is currently considering legislation aimed to support New Jersey startup companies by bolstering the benefits of business incubators and accelerators. Currently, New Jersey has only a reported 15 incubators and business accelerators. By comparison, California and New York reportedly have 375 and 179, respectively.

Business Accelerators and Incubators

According to the latest statistics from the International Business Innovation Association, there are approximately 7,000 business incubators and accelerators around the world. While they are all designed to help entrepreneurs and startup businesses achieve success, the programs can vary significantly.

In most cases, an incubator is designed for first-time entrepreneurs and startups that are still in their early stages. Incubators typically provide a shared, central workspace for several startup companies, along with mentorship and other resources. They are often operated by non-profit organizations and/or part of a local economic development program. 

In contrast, accelerators are more formal and rigorous training programs that take place over a specified period of time, much like a startup “boot camp.” Incubators are mentor-ship driven and intended for more seasoned entrepreneurs. In addition to providing startups the opportunity to market their business via a “demo day,” accelerators often also provide seed funding in exchange for an equity stake in the company.

Startup Businesses in Business Incubators Development Program

The proposed legislation, Senate Bill 1898/1899, directs the New Jersey Economic Development Authority (EDA), in consultation with the Secretary of Higher Education (secretary), to establish and administer the “Startup Businesses in Business Incubators Development Program” (program). The goal of the program would be to provide financial assistance and support services to an accelerator business or incubator business located within a business accelerator or incubator. To qualify, a business accelerator or incubator is required to be located within an urban transit hub or within one mile of a research institution campus. The EDA would provide financial assistance to a business accelerator or incubator in an amount that matches 20 percent of the amount of funding provided by a research institution up to a total of $200,000, which may be applied to any aspect of an accelerator or incubator business operating within the accelerator or incubator.

Startups Eligible for Financial Assistance

SB 1898 provides that, in order to be eligible for financial assistance from the EDA, an accelerator or incubator business must operate in one of the following fields:

• Clean energy or environmental technology;
• Life sciences, biotechnology, or medical device technology;
• Advanced materials, engineering, or manufacturing;
• Supply chain, transportation, or logistics;
• Big data, advanced computing, or digital technology;
• Defense or homeland security; or
• Food and agriculture.

An accelerator or incubator business seeking to participate in the program is to submit an application jointly with an accelerator or incubator. If approved, the startup would enter into a financial assistance agreement with the EDA. An applicant that fails to comply with the agreement must repay any financial assistance received and, if determined by the EDA, may also be required to pay a penalty not in excess of 10 percent of the amount of financial assistance.

Network Grant Program for Startups

The proposed startup legislation also requires the EDA to administer and establish a “Business Accelerator and Business Incubator Network Grant Program.” It would provide 10 grants annually, for seven years, to business accelerators or business incubators, based upon a competitive application and evaluation process. The grants provided under the program are required to equal $100,000 each.

In order to be eligible for a grant, a business accelerator or business incubator is required to qualify to receive financial assistance under the “Startup Businesses in Business Incubators Development Program.” The bill further requires the EDA to evaluate applications for the grant program and make award decisions upon evaluating the business accelerator’s or business incubator’s partnerships with innovative businesses, partnerships with a research institution, provision of support services and technology extension services, and partnerships with minority businesses and women’s businesses. The EDA is required to fund the grant program through monies as may be available to the EDA from other business development and from other monies available to the EDA from public or private sources.

Available Tax Credits for Accelerator and Incubator Businesses

SB 1898/1899 also would provide corporation business tax credits and gross income tax credits, for seven tax periods, for accelerator and incubator businesses participating in the development program. The credits are equal to 15 percent of the cost of accelerator or incubator business operating expenses during the business’s participation in the program. New Jersey startups may carry unused tax credits forward, if necessary, for seven tax periods or may file a petition for a refund equal to 50 percent of the amount of an unused tax credit.

The proposed legislation also would require the Executive Director of the EDA to provide at least $5,000,000 in tax credits available under the New Jersey Angel Investor Tax Credit Act to taxpayers for qualified investments in New Jersey emerging technology businesses located in business accelerators and business incubators over the period of the five fiscal years next following the effective date of the bill.

Next Steps

The Senate Economic Growth Committee recently consolidated and advanced the proposed bills. Companion legislation, however, has not yet been introduced in the State Assembly. In the meantime, New Jersey startup businesses looking to raise capital and boost their likelihood of success will often benefit from working with an experienced business attorney.

If you have any questions regarding the legislation, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Jeffrey Cassin, or the Scarinci Hollenbeck attorney with whom you work at 201-806-3364.