Hoping for the Next Google, State Will Help Pay Rent of Startups and Tech Firms

John Reitmeyer | July 26, 2018 | More Issues
Keen to make New Jersey hospitable to new cutting-edge businesses, governor announces modest incentives he says could be beefed up if they deliver results

Credit: Edwin J. Torres/NJ Govern
Gov. Phil Murphy at launch of new incentives for startups and tech firms in Princeton yesterday
Gov. Phil Murphy’s administration is launching a new economic-development program to encourage startups and tech firms to grow their companies at one of New Jersey’s small-business incubators or accelerators.

The state will subsidize up to six months’ worth of rent for participating firms under the new program, which will be administered by the state Economic Development Authority through an initial investment of $500,000.

The idea is to help the startups take advantage of resources that are provided by business incubators and other collaborative workspaces while freeing up more of their own funds for research and other activities that could help the firms become successful, said Murphy as he announced the initiative during an event in Princeton yesterday.

“We have everything right here to dominate the innovation economy,” Murphy said. “We’ve led this space before, and through these programs, we will again.”

The state also recently overhauled its research-and-development tax credit, a policy change that will complement the new rent-assistance program for startups, he said. The two initiatives drew immediate praise from leaders in New Jersey’s startup and tech community.

“We have a governor who gets it,” said Debbie Hart, president and chief executive of the group BioNJ.

More bang for NJ’s buck in startups?

The most recent state unemployment figures indicate New Jersey continues to exceed the national jobless average, with unemployment here at 4.3 percent compared to 4 percent nationally. Murphy, a first-term Democrat, has identified the innovation and tech sector as an area that is ripe for growth.

The governor has also frequently pointed to a study of the state’s economic-development potential and tax-incentive programs that was released last year by the global consulting firm McKinsey & Co. That study suggested New Jersey could get more bang for its buck by doing more to support startup firms instead of giving lucrative tax breaks to more established companies that have already undergone much of their growth.

Earlier this year, a nonpartisan task force led by Hart also reviewed ways the state could better support the biotechnology industry, recommending a new approach to tax incentives and subsidies as part of the review.

Under the program announced yesterday, a startup firm could qualify for grants that would cover the rent at an incubator or accelerator for periods of two, four and six months, with the maximum grant capped at $15,000. But bonus support would also be available if the workspace is new, if it is located in a newly designated federal “opportunity zone” – there are 169 such districts in New Jersey – or if it is affiliated with a hospital system or university.

Small-business accelerators, incubators and other collaborative workspaces typically help startups grow by providing them with office space, but also mentoring, access to financing and other supports. New Jersey currently has 29 incubators, seven accelerators, and 31 coworking facilities, and companies generally have a higher success rate when they start out in such places, according to Murphy’s office.

‘Stronger and fairer economy’

Tim Sullivan, the EDA’s chief executive officer, said the new rent-assistance program for startups would help develop New Jersey’s “entrepreneurial ecosystem,” as the state works to create the “stronger and fairer economy” envisioned by Murphy.

“The benefits of collaborative workspaces are clear for young startups, but capital constraints often serve as an obstacle, with entrepreneurs investing their limited resources to optimize research and product development efforts instead of paying rent,” Sullivan said.

At $500,000, the state’s initial investment in the rent program is small considering the annual state budget totals $37.4 billion and the state has also provided economic-development tax-incentives worth more than $5 billion since 2013. Murphy said yesterday that his administration would be taking a “moneyball” approach to the initiative, meaning it could increase funding if the early returns are promising. He also said small efforts can sometimes generate big results, pointing to Amazon and Google as examples of companies that started out as modest tech firms.

“These can actually end up birthing big companies that employ thousands of people, and that’s our hope,” Murphy said.

Changes to R&D tax credits

The governor also highlighted changes that were recently made to a program that provides New Jersey businesses with tax credits for research and development. Created in 1992 — before many of the technological breakthroughs that now shape the economy had been invented — the changes to the tax-credit program included updating and expanding the list of research activities that qualify for the tax credit, and allowing companies to qualify for larger credits, according to Murphy’s office.

The R&D tax credit is typically counted against a firm’s state corporate-business tax liability, and New Jersey provided roughly 200 companies with credits worth an estimated $80 million during the last fiscal year.
“It’s going to go up (as a result of the policy changes),” Murphy said. “We’re sure of that.”

Anne-Marie Maman, president of the New Jersey Business Innovation Network, praised the initiatives, saying it used to be that the leaders of a startup firm would have to go to a neighboring state like Pennsylvania to find a nurturing environment for their businesses.

“You shouldn’t have to leave home to follow your passion,” Maman said.