Why Evergreen Fund sets N.J. apart — and could set up state for future

New Jersey Economic Development Authority CEO Tim Sullivan loves to talk about how the proposed tax incentive programs could have a major impact — particularly in the state’s most challenging areas.

He talks about the Brownfields program, which will create jobs but also clean up sites.

“It’s good for people’s public health, it’s good for blight reduction and it’s obviously good for the jobs and economic activity that are created,” he said.

He talks about the Community Benefits Agreement — which means developers need to make sure their projects benefit more than just them. He talks about the emphasis on affordable housing.

“I think there’s good stuff for virtually every urban center,” he said.

The bill is expected to be discussed Friday and voted on (and passed) Monday.

And, if you want to get Sullivan really going, ask him what part of the more than 125-page bill has the potential to have the greatest impact a few years from now — the program that sets New Jersey’s incentive program far ahead of all others.

“Evergreen, period, end of sentence,” he’ll say.

The New Jersey Innovation Evergreen Fund, a program in which the state becomes an equity investor in startups, has been a favorite of Gov. Phil Murphy’s since it was first proposed — more than two years ago.

The idea is that the state’s willingness to contribute significant dollars (read: millions) into startups that venture capital firms have identified 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.

It’s a new play in the incentives game.

“In a typical tax credit deal, the state’s benefits are indirect,” Sullivan said. “Or, they come in the form of more taxes, they come in the form of more economic activity, they come in the form of jobs — and all those things are great. In this scenario, you get those things, plus the state gets a financial return.

“The state is putting equity into this. It’s not a tax credit, it’s not just providing a subsidy, it’s providing an investment where the Evergreen Fund will be a part-owner of the company. And, if the company sells and makes a ton of money for its investors, great. The state is one of those investors.”

According to state officials, the Evergreen Fund will make available approximately $500 million in venture capital funds to be invested into New Jersey-based startups. Of the $500 million total, $250 million will be raised by competitively auctioning state tax credits to New Jersey corporations over five years. The fund would then invest the auction proceeds, alongside at least $250 million in funds from venture capital firms, into promising startups with the potential to scale up and create jobs.

Companies that purchase tax credits through the auction also will be required to make additional commitments, including providing mentoring and networking support for startups that receive investments.

To ensure optimal return on investment, state officials said the fund will let private venture capital investors take the lead on identifying and investing in businesses in high-wage, high-growth sectors, such as life sciences, financial technology, advanced manufacturing and cybersecurity. To reduce risk and support founders and entrepreneurs who reflect New Jersey’s makeup, it is planned for the fund to invest in a diversified range of companies.

The fact that venture capital companies are involved is a big part of the potential for success, Sullivan said.

“We’re not going to be picking winners, making the investment decisions,” he said. “We’re going to be partnering with the private sector to do so.”

Of course, whenever you’re talking venture capital, you have to talk about the payoff. Or, rather, how long until that payoff comes.

Sullivan has a quick answer for that, too.

“It might not be three years, it might be five or 10 years from now, but it could be a game-changer,” he said. “Seeding and helping to create a crop of new companies that could go from 5-10 people to 5,000-10,000 people with the state participating on the equity line of those companies and sharing some of that those gains directly is an incredible opportunity.”

It’s why Sullivan is so excited about the potential of these new incentives.

“Nobody’s got a program like Evergreen that’s going to invest in the innovation economy quite this way,” he said. “All told, between all the programs, I think we probably will have the most comprehensive economic development toolkit of anywhere.

“It’s got the right controls and the right oversight and the right transparency to make sure that those investments are made the way the taxpayers deserve. But it’s going to have the most pro-growth progressive economic development package anywhere in the country.”