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New Jersey EDA Ponders Angel Investment Guarantee

New Jersey’s angel investors, wealthy individuals who inject cash into ventures that turn ideas into businesses, may get a guardian angel of their own: the state Economic Development Authority.

By:
Beth Fitzgerald
Newark Star-Ledger

http://www.nasvf.org/web/allpress.nsf/pages/9633

The EDA is looking into crafting a program to partially guarantee a few of the investments by New Jersey angels. Michael Conte, an EDA finance officer, sketched the outlines of an angel guarantee program Friday in remarks to the annual "growth company showcase" of the New Jersey Technology Council in Newark.

Conte said EDA is talking to leaders of the state’s two angel networks — Jumpstart New Jersey and the Jersey Angel Network– which have bankrolled about a half-dozen New Jersey startups during the past two years.

The EDA is considering a 50 percent guarantee, meaning an angel who puts up $200,000 would get $100,000 back from the state if the venture fails. The EDA would likely do a handful of angel deals per year.

"We are researching this, and it’s still very much in the review stage," said Caren Franzini, EDA chief executive. She stressed there is no certainty a program will emerge.

"This is a very interesting concept and that’s why we are looking into it," Franzini said. "You know we never stand still and we like to try to enhance our products."

"This is really a fabulous idea," said Edward Zimmerman, a member of the Jersey Angel Network and a partner in the Roseland law firm Lowenstein Sandler. "Anything that facilitates really early stage investment is great. The EDA has been innovative, creative and energetic in their approach to the problems of early stage funding, and they are making New Jersey a good spawning ground for early stage companies."

EDA initiatives for high-tech startups include long-term loans and a program that allows high- tech firms to sell operating losses to profitable companies. The EDA provides tax rebates to companies as a reward for creating jobs, and in some cases a high-tech venture can quality with as few as 10 jobs.

Maxine Ballen, president of NJTC, said an angel guarantee initiative, "would be a great catalyst to spur more innovation that, quite frankly, has been dying on the vine because we have not had the flow of capital."

Victor Boyajian, a member of the Jumpstart New Jersey angel group and an attorney with Sonnenschein Nath & Rosenthal’s Short Hills office, said an EDA guarantee would spur more angel investing by helping to reduce the risk.

"An angel guarantee could be very effective, and the trick from the state’s perspective, obviously, is to make sure they are betting on the right horses," Boyajian said.

Without angel financing, "my company would not exist today," said Rich Kushel, chief executive of Archive Systems, a document processing company in Fairfield that helps firms reduce paperwork.

Kushel said he started Archive 12 years ago with five people and about $200,000 in angel money. Now the company has 160 employees and $15 million in annual revenue, and last month closed its first round of venture capital, raising $8.5 million.

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