Big day for Innovation Evergreen Fund: Approval of purchase of tax credits ($50M) is 1st step toward funding startups

EDA also expected to open qualification process for venture capital firms looking to partner with state in investment in high-growth businesses

The board of the New Jersey Economic Development Authority later Wednesday morning is expected to approve the purchase of $50 million in tax credits — the first step in a process in which the state eventually will use that capital to help in the initial funding of six to 10 high-growth businesses in 2023 through the state’s innovative New Jersey Innovation Evergreen Fund.

The approval is a landmark moment in the creation of the NJIEF, a unique program that Gov. Phil Murphy and the EDA feel will increase access to strategic resources and venture capital in the state — making it easier for startups to start in New Jersey and grow in New Jersey.

Under the guidelines of the NJIEF, the state of New Jersey will become an equity investor in startups with an aim of ultimately deploying up to $600 million into companies alongside professional venture capital groups over the next five to seven years.

While eight companies are expected to be approved, two are expected to be responsible for the great majority of the $50 million in credits: Comcast and Verizon. Both companies are expected to be approved for purchases of at least $20 million.

The EDA also is expected to announce Wednesday that it is accepting applications from investment firms to be considered “Qualified Venture Firms” — meaning they would be certified for participation in the program.

This designation will enable the firms, in partnership with the NJIEF tax credit purchasers, to access additional capital to invest in qualifying high-growth New Jersey businesses while adding additional strategic resources.

The state has long been excited about the potential of the Innovation Evergreen Fund, which was proposed in 2018 and approved in 2020.

The state is showing a willingness to contribute significant dollars (millions) into startups that venture capital firms have identified. This could make more of those companies start here, grow here and stay here, the theory goes. And, since the fund will look to reinvest many of the potential gains that could be realized, there’s a chance the fund could be self-sustaining, state officials have said.

The $50 million in tax credits sold at auction reflected higher demand that warranted an increase in the funds available from the pilot $30 million initially offered in August.

The auction provides the EDA with approximately $41 million of available capital for initial and follow-on investment. The EDA will get an additional $5 million to invest from the state budget.

The next tax credit auction likely will be in the second half of 2023.