Gov. Phil Murphy has made rebuilding the state’s innovative economy a hallmark of his economic efforts since taking office in January of 2018 — repeatedly emphasizing that he wants the state to find more ways to support startups and entrepreneurs.
His efforts have met with much success, thanks to numerous incentive programs, including the unique Innovation Evergreen Fund, which is run by the N.J. Economic Development Authority and is aimed at making N.J. a better fit for venture capital.
As Murphy enters his final year in office, there is one additional way to help the state attract more startups — encouraging the Legislature to pass legislation that would recognize the federal tax benefit called QSBS, which stands for Qualified Small Business Stock exemption.
In the simplest terms, it allows early investors — upon sale of the company — to get tax relief on the capital gains from the first $10 million (or 10x the basis of the company) of the sale.
If that seems like a lot, consider this: A typical angel-invested startup can sell for two to three times that amount — if not more.
A bigger statistic is this: 45 states feel this is a good deal, making New Jersey an outlier.
Aaron Price, the CEO of TechUnited:NJ, feels the state’s failure to adopt QSBS standards is hurting the startup community here.
“Roughly 90% of the regional investment in startup activity goes to New York City,” he said. “And one of the contributing factors there — and around the country — is that there are more incentives, tax incentives specifically, to start businesses in other states.”
Price said QSBS makes sense.
“The federal government recognizes that starting a new company is a risky endeavor, and so to incentivize the risk, they have created this benefit,” he said. “You have to realize, when you invest in or work at a startup, you usually are getting under-market salaries — if you’re getting paid at all. And, of course, most startups don’t reach a point where they are sold for millions of dollars.
“This is meant to encourage investment and entrepreneurs.”
Price feels the state will more than make up for lost potential revenue when it sees more potential revenue from investors that may choose to go elsewhere.
Price isn’t alone in this view.
In fact, last June, Assemblymen Roy Frieman (D-16), Gary Schaer (D-36) and Cody Miller (D-4) introduced A4455 in an effort to get New Jersey in line.
That’s good, said Price.
Unfortunately, the bill — which was a carryover from previous legislative sessions — didn’t get far.
Price feels the upcoming year could be different.
“I have high hopes that we can get something done in 2025,” he said.
Price said he sees it as a potential legacy moment for Murphy — one that would help another of his legacy hopes: Artificial Intelligence.
“The governor is right to want to make New Jersey the hub of AI innovation — we have all the pieces that are needed,” he said.
Except QSBS.
Having just one AI startup choosing to start up elsewhere because of the lack of QSBS could be a huge miss, Price said.
“Just imagine how much AI startups will sell for,” he said. “Imagine how much more than $10 million that could be. Do we really want to miss out on that?”
Conversation Starter
Reach TechUnited:NJ at: techunited.co or call 732-456-5700.
