What Startups and VCs Need to Know About the New Jersey Innovation Evergreen Fund

What Startups and VCs Need to Know About the New Jersey Innovation Evergreen Fund

The New Jersey Economic Development Authority (NJEDA) recently proposed rules to establish the New Jersey Innovation Evergreen Fund. The new fund will serve as a source of capital for the State to co-invest with venture capital investment firms in early-stage businesses based in New Jersey, with the goal of fostering innovation and attracting businesses to New Jersey.

“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,” Governor Phil Murphy said in a press statement

How the New Jersey Innovation Evergreen Fund Works

The New Jersey Economic Recovery Act of 2020 authorizes the NJEDA to sell up to $300 million of corporate tax credits through the auction of up to $60 million of tax credits annually for the entirety of the seven-year program. In exchange for the tax credits, the New Jersey Innovation Evergreen Fund (Evergreen Fund) will receive capital from the tax credit purchasers along with strategic commitments to support early-stage businesses.

The NJEDA will return dividends and returns on investments to the Fund, making it self-sustaining or “evergreen.” Once the Fund has received total deposits from dividends and returns from qualified investments equaling $500 million, the NJEDA will pay 50 percent of any return on investment that exceeds two times the amount invested for that qualified investment to the State’s General Fund. The NJEDA will also utilize 75 basis points of the total funding amount in the Evergreen Fund to establish and administer additional programs that support the growth of innovation in the State.

Eligibility for New Jersey Innovation Evergreen Fund

To be eligible to purchase tax credits, a potential tax credit purchaser must meet criteria including, but not limited to:

• Specify the requested amount of tax credits the potential tax credit purchaser proposes to purchase, which shall not be less than $500,000;

• Specify the percentage amount the potential tax credit purchaser proposes to pay in exchange for the requested amount of tax credits, which shall not be less than 75 percent of the requested dollar amount of credits;
• Specify and quantify the nature and cost of its strategic commitment, including but not limited to, mentorship hours, internship offerings, sales, and distribution pipeline access;
• Commit to serve on the New Jersey Innovation Evergreen Advisory Board for one-year from the time of tax credit approval; and
• Provide a refundable deposit for 10 percent of the tax credit purchase offer, not to exceed $500,000, at the time of application.

To receive an investment through the Evergreen Fund, a business must satisfy the following criteria:

• Is registered to do business in New Jersey with the Director of the Division of Revenue and Enterprise Services in the Department of Treasury;
• Has principal business operations in the State;
• Is engaged in a targeted industry;
• Employs fewer than 250 full-time employees; and
• Meets the definition of a high-growth business.

The NJEDA will also establish an application process through which a venture firm may apply for certification as a qualified venture firm. Approval will enable the qualified venture firm to apply for funding from the Fund to make qualified investments in early-stage New Jersey businesses. To be eligible to become a qualified venture firm, a venture firm must meet various eligibility criteria, including but not limited to:

• Not less than $10 million in any combination of one or more of the following: net assets of the funds managed by the qualified venture firm, equity capitalization of the funds managed by the qualified venture firm, or written commitments of cash or cash equivalents on the date the determination that the certification is made;
• At least two principals or persons employed to direct the qualified investment capital, each of which shall have at least five years of significant angel investment experience or professional money management experience in the venture capital or private equity sectors; and
• Additional weighted evaluation criteria, which may be amended by the Authority, including: the management structure of the applicant, the applicant’s investment strategy, the location of the venture firm, and the applicant’s proposed structure and policy of investments in qualified businesses.

What’s Next?

The NJEDA expects to launch the Evergreen Fund later this year. In the meantime, interested entities should review the proposed rules, eligibility requirements, auction application and review process, and other materials on the NJEDA website. We also strongly recommend working with experienced counsel who can walk you through the approval process.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact Ashley Brinn or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.