NJEDA Steps Up With Funding for Approved Accelerators and Their Qualifying Cohorts With Exciting New $2.5 Million "NJ Accelerate" Program
Gibbons Corporate & Finance News
February 21, 2020
On February 11, 2020, the New Jersey Economic Development Authority (“NJEDA”) approved a $2,500,000 pilot program labeled NJ Accelerate (“NJ Accelerate”). The NJEDA expects to attract more accelerator and start-up activities to the State by encouraging the increased participation of New Jersey based entrepreneurs in accelerator programs that provide specialized expertise, mentorship, and technical assistance (as described in Section B below). Startup accelerators, also referred to as seed accelerators, are organizations that seek to help startups attain success. Startup accelerators are fixed-term, cohort-based programs that include seed investment, connections, sales, mentorship, and educational components, culminating in a public pitch event or “demo day” to accelerate growth.
The NJ Accelerate program will be organized in a two-step process: (1) accelerator operators will be pre-qualified (“Approved Accelerators”) and, (2) financial assistance will be provided from the NJEDA to domestic New Jersey early-stage companies that complete a program at an Approved Accelerator.
Through NJ Accelerate, the NJEDA shall:
- Provide direct matching sponsorship support to Approved Accelerators for programs and events held within New Jersey.
- Provide direct loans and rent support to eligible domestic New Jersey early-stage companies upon the successful completion from an Approved Accelerator program.
- Promote Accelerator program opportunities in the New Jersey innovation ecosystem.
(A) Pre-Qualification Requirements for Approved Accelerators
To be an approved accelerator program, an accelerator will be required to submit qualification materials to the NJEDA with a commitment to open their program participation to New Jersey entrepreneurs, and agree to an annual review for NJ Accelerate program participation. All accelerators, anywhere, are welcome that meet the NJ Accelerate program criteria and will be evaluated on a first-come, first-served basis during the pilot. The NJEDA will promote the NJ Accelerate program across the State’s innovation ecosystem (i.e., through referrals, inclusion on the NJ Accelerate website, reference on social media and, from time-to-time, features in news releases), as well as provide NJ based Programmatic Event (described below) sponsorship to the Approved Accelerators. The object of this collaboration is to encourage increased participation of New Jersey based entrepreneurs in high quality accelerator programs, thus increasing the chances of successfully growing younger, innovative companies in New Jersey.
To be considered as part of the NJ Accelerate Program, and become an Approved Accelerator, the accelerators must meet the below minimum criteria.
(1) The Accelerator is best-in-class as demonstrated by:
- A well-codified thorough and rigorous screening process for all applicants to the Accelerator.
- A structured curriculum that is focused on supporting the growth of start-ups and, at a minimum, includes business strategy around product sales and marketing.
- High prior participant satisfaction, as verifiable through reference calls and testimonials.
- Access to at least 50 actively engaged subject matter experts and mentors across industries or functional capabilities to provide specific programmatic training for each company (i.e., technology, sales, strategy, financing, accounting, marketing, fundraising, etc.).
- Program engagement of the broader start-up ecosystem of mentors, advisors, or investors from outside the Accelerator and host of a demo day viewable to outside participants.
- A minimum of 20 mentoring hours to the selected participant startups.
- A proven and documented or certified track record of success in prior graduates, demonstrated by at least 35% (which is the prevailing market median and will be adjusted annually by NJEDA staff according to available updated data) of graduates to receive follow-on funding from non-related parties (non-related is defined as anyone not in participating company managements), strategic acquisition, and significant (50%+) revenue growth in the last year or achieve an exit.
- The existence of a platform to facilitate community engagement and networking for current and past program participants (i.e., an active alumni network).
- If a corporate accelerator, the active participation of staff at all levels of the organization, including senior management at the corporation.
(2) An accelerator is required to include an in-person aspect and not be entirely virtual, which allows for engagement and personal mentoring of the selected companies; the permanent or temporary physical space used by the Accelerator must be in the United States, equipped to host events, and be available for an NJEDA site visit (upon request).
(3) An accelerator must provide financial investment (in some form) to at least one participating company per program cohort, including direct investment or customer sales relationship (in-kind arrangements are insufficient).
(4) Accelerators must have graduated a minimum of two cohorts prior to NJ Accelerate approval.
(5) The Accelerator Program must support innovation and have a consideration for, or focus on, at least one of the eight focus sectors in Governor Murphy’s economic development plan, with a preference for all accelerator programs that have a focus on supporting the following underserved groups: female entrepreneurs and founders of color.
(6) The Accelerator Program is open to applicants from New Jersey (i.e., start-up companies and entrepreneurs).
(B) Domestic New Jersey Company Eligibility and Support
In order for a start-up company to qualify as a “Domestic New Jersey Company” at least 50% of the company’s employees must work in the state of New Jersey within a period of up to six months from the time of completion from an Approved Accelerator program, among other specific eligibility requirements.
An eligible New Jersey company that graduates from an Approved Accelerator cohort may submit an application within a period of up to six months following graduation (or, with specific respect to the rent award portion of NJ Accelerate, the latter date of departure from the Approved Accelerator physical space), and NJEDA will make the following support available:
(1) Direct Funding – Eligibility for approval of a 1:1 matching NJEDA loan funding up to $250,000.
- The funding will come in the form of a 10 year convertible promissory note and will be in the same amount of investment dollars funded into the startup by the Approved Accelerator. No payments for the first seven years. Interest during this period will accrue and be annually. The NJEDA will receive warrants with 10 year maturity worth 50% of the convertible note principal utilizing the NJEDA’s standard warrant form and will match the pricing on the Approved Accelerator’s investment.
(2) Rent Support – Automatic eligibility to receive rent support not to exceed $25,000, in addition to any direct support from the NJ Ignite collaborative workspace host site. If the Approved Accelerator offers a specified physical space accommodation for companies beyond cohort graduation date, the consideration for the rent award may be captured by the company beyond the six month application period, and will commence upon the latter exit or departure date from the Approved Accelerator.
A New Jersey company may select to take advantage of both levels of program support – (1) rent support and (2) direct funding, or at their option, may select to utilize only one of the program features.
(3) MWBE Bonus – Eligibility for extra funding and rent support for women or minority owned businesses (“MWBE”), as certified by the NJ Department of the Treasury, that graduate from an Approved Accelerator or for Approved Accelerators with a diversity and inclusion focus as per the following:
- The NJ state certified woman or minority owned business is eligible for a 5% bonus to the otherwise 1:1 matching funds (which may result in a maximum convertible note of $262,500 with the consideration for the 5% bonus; the 5% bonus is offered on top of the 1:1 match funding).
- The NJ state certified woman or minority owned business is eligible for a bonus month of rent sponsorship (which may result in a maximum award of seven months).
(4) Programmatic Events – Up to $105,000 is reserved for sponsorship of Programmatic Events (described below) in New Jersey for each Approved Accelerator, which includes consideration for an additional 5% funding bonus beyond the matched funding outlay for qualifying Approved Accelerators with a diversity and inclusion focus. NJEDA will offer cost-sharing sponsorship to each Approved Accelerator to host “Programmatic Events” in New Jersey. Examples of Programmatic Events include, but are not limited to, the Approved Accelerator’s demo day; cohort road show; an in-person class; accelerator sourcing event or pitching competition; and a dedicated networking event or conference. This funding will be available at an amount of up to $25,000 per Programmatic Event, per Approved Accelerator in the form of a 1:1 matching sponsorship.
Each Approved Accelerator will be capped at $100,000 in total sponsorship during this pilot program with consideration for a monetary Programmatic Event sponsorship bonus of 5% (up to an additional $5,000 beyond the matched funding outlay) for Approved Accelerators that demonstrate meaningful written policies and practices for attracting and promoting companies owned by women and minority persons, as defined by the New Jersey Department of the Treasury for purposes of the MBE/WBE certification. Approved Accelerator event sponsorship will be subject to review in advance of any event. NJEDA reserves the right not to disburse funding for events that occur outside of NJEDA ethical requirements and policies.
(C) Estimated NJ Accelerate Budget
With a $2,500,000 pilot program budget, the NJEDA anticipates that approximately 10-15 companies will be supported in the NJ Accelerate pilot program in addition to the support and engagement of at least five Approved Accelerators. It is anticipated that each Approved Accelerator will average two to three eligible companies during the pilot program.
It is anticipated that the average NJ Accelerate direct funding to any one company (that completes a program at an Approved Accelerator) will range from $100,000 to $262,500. The maximum funding provided to any single company by the NJEDA through NJ Accelerate could reach up to $287,500 ($250k loan + $25K rent grant, with the additional consideration for MWBE qualifying funding of up to $12,500 and one month of rent).