Startups, Incubators, Accelerators: Thinking Big About Small Business

John Reitmeyer | February 23, 2018 | Budget
New Jersey works to enhance business climate for fledgling companies by delivering support and services to help them thrive

startup lab
Huge tax incentives that were the hallmark of New Jersey’s last gubernatorial administration have certainly not disappeared – as evidenced by the $5 billion that’s been offered to Amazon to lure the mega-retailer to Newark. But now state officials are considering another approach to economic development, nurturing startup companies at the other end of the business lifecycle.

Legislation that would create a new program to provide support for startups, business incubators, and accelerators was approved unanimously yesterday by the Senate Economic Growth Committee.

The program would be administered through the state Economic Development Authority, and it would be used to provide grants to both startups and incubators and accelerators that work with these companies, providing physical spaces and other business-support services, as they try to become successful. The bill would also seek to encourage more public-private partnerships between incubators and accelerators and research universities to help more companies take root in New Jersey, with the hope they could grow to become the next Amazon.

The concept behind the legislation echoes research released last summer by global consulting firm McKinsey and Co. that determined New Jersey could get more bang for its buck from economic-development programs by doing more to help startup businesses instead of providing incentives primarily to larger, more-established companies. It also synchs up with the new vision for the state economy that Gov. Phil Murphy laid out during last year’s gubernatorial campaign, as he emphasized the need to foster more growth in the technology and startup sectors.

Playing catchup

The bill has also already drawn strong support from the state’s business-lobbying organizations, with representatives noting that New Jersey is playing catchup to other states when it comes to incubators and accelerators.
“New Jersey has only 15 incubators and business accelerators, while California and New York have 375 and 179, respectively,” said Andrew Musick of the New Jersey Business & Industry Association.

“They are critical to helping high-tech companies grow and thrive,” he said.

During the tenure of former Gov. Chris Christie, the state pursued an aggressive economic-development strategy that involved using lucrative tax incentives to lure companies to relocate to New Jersey, or to keep them from leaving the state. But while New Jersey’s unemployment rate has steadily improved since the end of the Great Recession, it remains higher than the national jobless average. The rate of economic growth here has also lagged that of many other states, according to federal labor statistics.

The report released by McKinsey and Co. last July determined that more than 80 percent of the state’s tax incentives were awarded to older, more established companies – even though younger, growing companies tend to create more jobs. The firm’s analysis also found that New Jersey was spending roughly $174,000 for each job that was created or retained by one of the older firms, but $110,000 for every job in companies that are younger than 10 years.

Encouraging innovation

Murphy, a Democrat, was a frequent critic of the Republican Christie’s economic policies, and he promised throughout the campaign season last year that he would strengthen New Jersey’s economy, in part by doing more to encourage innovation and tech-based businesses. Since taking office last month, he’s ordered an audit of the EDA’s current tax-incentive programs and has called for a “culture change” at the Trenton-based agency. His administration has also released a transition report on technology and innovation that called on state officials to encourage the establishment of tech hubs and business incubators.

Under the legislation that was approved by the Senate committee yesterday, the EDA would work in tandem with the state secretary of Higher Education on the proposed incubator program, which would provide support to facilities located within a mile of one of the state’s research institutions, or within a specially designated urban-transit hub. The program would be geared specifically toward growing companies in the fields of clean energy; biotechnology and medical-device technology; engineering and manufacturing; transportation and logistics; data and advanced computing; homeland security and defense; and food and agriculture.

The bill would provide up to $200,000 in funding from the state to match a research institution’s investment in an incubator or accelerator facility. It would also establish a grant program that the incubators and startups could jointly apply to, with $1 million made available annually to fund 10 grants totaling $100,000 each.
The legislation would also provide tax credits to the startup companies, and carve out $5 million from the state’s Angel Investor Tax Credit program to encourage outside investment in startups. The grants and tax credits would expire after seven years unless lawmakers take action to renew them. The EDA would also be required to provide the governor and lawmakers with a series of annual reports on the program’s administration, according to the bill, and the final report would have to include a recommendation on whether the state should keep providing tax credits through the proposed program.

‘The next level’

Committee Chair Nilsa Cruz-Perez (D-Camden) said the goal of the proposed new program is to “help businesses get to the next level.”

“New Jersey has great research institutions that could potentially be the starting point for public-private partnerships with accelerators and incubator businesses,” said Cruz-Perez, a primary sponsor of the legislation. “This would be a great way to create employment and internship opportunities for students in science and technology, and also to utilize our research institutions to support business endeavors.”

The federal government has operated a similar incubator-grant program since 2014, and it allows startups and incubators and accelerators to compete for federal funding. Two small-business incubators from New Jersey have been among those to benefit from that program, which U.S. Sen. Cory Booker (D-NJ) and other federal lawmakers have been working on a bipartisan basis to expand.

Musick, the NJBIA official, said New Jersey already does a lot to support innovative businesses, but he added “there are areas that can be improved upon.”

“New Jersey’s economic future will depend on attracting innovative, high-tech companies and creating an environment where these kinds of companies can thrive,” he said.