Programs Put Jersey High-Techs on Map – State initiatives fund early-stage ventures

Epigenesis of Cranbury is investing millions of dollars and years of research to create a better treatment for asthma. Seven years ago, a $200,000 state grant provided early help, and recently the company has raised millions from venture capitalists, including a couple based in New Jersey.

By:
Beth Fitzgerald
Newark Star Ledget

http://www.nasvf.org/web/allpress.nsf/pages/8112

"New Jersey has a large body of highly trained citizens who can work in biotechnology and a wonderful university system where a lot of academic research is being done," Epigenesis Chief Executive Dan Soland said.

His 15-employee firm has lined up a $23 million venture capital round led by Princeton-based Care Capital, a health-care venture capital firm. Another investor is the New Jersey Technology Council Venture Fund. The state has thus proven a good venue for Epigenesis, which relocated here from North Carolina.

During recent months, New Jersey has rolled out additional, revamped and revived state initiatives to finance technology companies during the very early stages of development, before the concept is convincing enough to win serious cash from the venture capitalists who trade their money for an equity stake.

The state is on track to spend more than $100 million a year supporting early-stage enterprises, with an eye to creating high-paid jobs and persuading research scientists to set up shop here. Experts say the Garden State has moved to the middle of the pack and is holding its own in competition with neighboring states.

"Never have there been so many concrete programs that we can point to that will help high tech, and especially biotech," said Debbie Hart, president of the Biotechnology Council of New Jersey.

The state’s technology-finance tools includes the once-dormant Springboard program, which ran out of money and shut down for a couple of years, but has just been revived with a $10 million annual war chest that could fund as many as 100 ventures a year.

A state biotechnology venture fund is being formed with $10 million in public money, which is expected to leverage additional private capital. The state’s job creation tax incentive program has been revamped to help small start-ups qualify for state income tax rebates that reward job creation. Instead of the old hurdle of 75 jobs, a firm can create only 25 jobs — or as few as 10 if the jobs are defined as high tech. New Jersey is funding $50 million in tax rebates this year.

Then there is the very popular tax-loss-sale program. Development-stage, high-tech firms get to sell their tax losses to profitable companies, which use them to lower their taxes; the developing firm gets the cash and the state gives up $40 million in state income taxes each year to pay for it.

These programs have impressed the state’s high-tech community, and more are on the way. The state is selling $50 million in bonds to fund economic development, with Springboard and the biotech venture fund accounting for a total of $20 million. Another $30 million in programs are coming, with the next announcement likely to come early next year.

Experts say these efforts are putting New Jersey on the map as a serious contender to lure cutting-edge technology ventures.

Jim Gunton is general partner of the New Jersey Technology Council Venture Fund, which itself received seed capital from New Jersey. He called the state’s programs "critical to New Jersey remaining a viable place to start technology companies."

He said the tech-stock collapse three years ago ushered in "the worst environment for venture capital of the last 25 years. But the environment is now more encouraging for young companies, and you are starting to see, believe it or not, competition among investors for hot companies."

"I’m tired of entrepreneurs telling me Pennsylvania has this program and that program," said Randy Harmon, who runs a program funded by the state Commission on Science and Technology that helps firms win federal research grants. "Springboard is as good as anything any other state is offering."

Pennsylvania takes a slightly different approach; the Ben Franklin Technology Partners fund "invests directly in young firms that need to get to the next stage to create technology, products and processes," said Rose Ann Rosenthal, chief executive. Similar to New Jersey, "our goal is to make sure the company is in our state, growing and creating jobs and wealth," she said.

Harmon is with the Newark-based Small Business Development Centers and his program helps entrepreneurs qualify for Small Business Innovation Research grants, which are awarded by federal agencies that need technology. By applying for all available state and federal programs at various points in their life cycles, entrepreneurial firms can keep operating until they are ready for venture capital and the commercial marketplace.

Harmon estimates between 500 and 1,000 New Jersey ventures are staying afloat on the rafts of one or more government high-tech funds.

"I’ve done it all," said Harris Goldberg, founder of InMat in Hillsborough, where high-tech chemistry keeps air from leaking out of tennis balls and is being re-engineered to provide protective gloves for the Army.

Founded during 1999, InMat’s early days were funded by two state programs, Springboard and the Seed Capital loan program. The company has since landed SBIR grants and venture capital and booked revenue from product sales to sporting-goods manufacturers.

"We’ve always found a way to survive, and government programs were critical in the early stages," Goldberg said. The average Springboard grant is $250,000, "and it would help if the grants were larger: $500,000 is a better number for companies that look promising."

InMat has eight employees and plans to be cash-flow positive by the end of next year.

"It’s a long haul because a materials business takes longer to develop than software. But the state is being paid back through job creation. Without those programs, all of us probably would have relocated to somewhere else," Goldberg said.

Ewa Herbst has been waiting to jump into Springboard ever since the program was frozen for lack of funds two years ago. Her Edgewater company Herbst Reset assembled more than 20 employees, university scientists and contract engineers to develop a microprocessor-based platform technology to power biomedical applications, such as cardiac devices to gene therapy. She launched another company, Herbst Technologies, to start commercializing the technology next year.

National Institutes of Health grants totaling $2.7 million funded the work so far, "but we can’t use NIH money for commercialization, only for research and development. We need additional resources to take that step, and that is where Springboard comes in," Herbst said.