A Look at the NJ Innovation Evergreen Fund

October 19, 2018

In this special episode of a Wink & a Glance at Venture Capital, EisnerAmper Director of Capital Markets Alan Wink examines Governor Phil Murphy’s NJ Innovation Evergreen Fund. Alan explores how companies qualify, the fund’s unique structure, how the state plans to finance it, and the critical role of VC firms in this public/private partnership.

Transcript

Dave Plaskow: Hello and welcome to the EisnerAmper podcast series. We're always interested in the latest trends and developments, as well as any related business and accounting opportunities and challenges. Today we're taking a look at the New Jersey Innovation Evergreen Fund. I'm your host Dave Plaskow, and with me today is Alan Wink, a Director at EisnerAmper Capital Markets. Alan, welcome and thanks for being here.
Alan Wink: Dave, good morning.

DP: During the recent announcement by New Jersey Governor Murphy regarding his economic development plan, he had a chestnut in there about the creation of a New Jersey Innovation Evergreen Fund. So who is this fund for, and what is it designed to do?
AW: This was probably one of the key parts of the governor's address a couple of days ago. This Innovation Evergreen Fund’s purpose is to bring venture capital dollars back to the state of New Jersey. Venture capital dollars really drive the technology and life sciences sectors along with innovation and development. New Jersey has really fallen in the rankings over the last 10 years in terms of VC dollars being invested in the state. This Evergreen Fund will go a long way to help improve those numbers.
DP: How large a fund are we talking about?
AW: It's about a $500 million fund of which $250 million is coming from the state of New Jersey and $250 million is coming from private venture capital funds.
DP:Expand on that. How does the state plan to raise money for the fund?
AW:It's really quite an innovative program. The state of New Jersey is going to be selling tax credits over a five-year period. They're going to be selling $60 million of tax credits each year for five years to raise the $250 million dollars of public capital. They're anticipating that these tax credits will be selling for about 90 cents on the dollar. The state is hoping to raise $250 million dollars for this fund over five years.
DP:And how will the fund be structured?
AW: It really is a partnership between the VC firms and the state of New Jersey, where each is going to be equal. VCs participants will be doing the legwork of vetting the deals, vetting the business plans and making investment recommendations.
DP:Doing what they do best. So is there a track record here? Are any other states taking this approach?
AW:We're certainly not aware of any. It seems that New Jersey truly is the innovator here, and maybe this is innovation by necessity. As I mentioned, New Jersey has really fallen in the rankings of states receiving venture capital dollars. I guess 10 years ago we were ranked number five in terms of the receipt of VC dollars and we've now dropped to number 15. So there really is a necessity to bring more VC dollars back to the state of New Jersey to drive innovation and development.
DP:Are there any risks or downsides to New Jersey in taking this approach?
AW:No more risk than any venture capital investment might have. It's really mitigated by the fact that the deals and the business plans are being vetted by experienced professional venture capital firms that are making investment suggestions. That's going to help take some of the risk out of these transactions.
DP:Alan, for those life science, biotech and other startup firms that are listening, what are the qualifications for them to participate in this program?
AW:There are probably really only two. First, they have to pass the scrutiny of due diligence from the venture capital investors; second, they need to locate their businesses in New Jersey. Those are the only criteria for accepting these dollars.
DP:Seems like a somewhat easy lift. Is this a done deal?
AW:Yes and no. The auctioning of the tax credits still needs legislative approval. From what I've heard, it's probably a slam dunk that it'll probably get through pretty quickly.
DP:Anything else in the governor's economic development plan that caught your ear as far as enhancing innovation in the state?
AW:One was the creation of jobs in the STEM space: science, technology, engineering and math. I think the plan calls for creating an additional 40,000 jobs in that space over the next five years, which can go a long way toward enhancing innovation in the state.
DP:It seems like a great idea and we'll see where it goes. Thanks for giving our listeners some insight on this.
AW:Thanks Dave.
DP:And thank you for listening to the EisnerAmper podcast series. Visit EisnerAmper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast when we get down to business.

About Alan Wink

Mr. Wink assists clients with capital budgeting, capital structuring and capital sourcing. He has worked with many tech and life science companies on developing the appropriate capital structure for their position in the business life cycle.

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