When state economic development agencies want to provide seed money for tech start-ups, they usually reach into the traditional tool basket, which includes grants, loans and targeted incentives. The New Jersey Economic Development Authority has found a novel way of expanding this toolset: NJEDA has made a series of “limited partnership” investments in an NJ-based private venture-capital fund that targets growth-stage tech businesses.
The NJEDA board recently approved a $2.5-million investment in Edison VIII, an offering of the VC firm Edison Partners, founded in 1986 and currently based in Princeton, NJ. According to a release from NJEDA, the Edison VIII fund will invest in up to 25 tech start-ups in four industry sectors: financial technology, healthcare information technology, marketing technology and something called enterprise 2.0 (focused on mobile, security and business operations software).
The NJEDA previously invested in four Edison Partners funds. The firm, formerly Edison Ventures, is said to have nearly a dozen companies in its New Jersey portfolio, including: Trialscope (which helps clinical trial sponsors comply with evolving disclosure requirements); PHX (which offers healthcare cost management solutions); and Scivantage (a tech provider of online brokerage software). Edison recently divested its holdings in Fairfield, NJ-based Archive Systems Inc., which offers document management software and recently was acquired by Access, a national networking firm.
“The EDA’s commitment to New Jersey’s technology ecosystem is unwavering,” NJEDA CEO Melissa Orsen said, in the release. “As part of this commitment, we help increase available capital for companies by investing as a limited partner in venture capital funds.”
The NJEDA says that by investing more than $40 million in venture capital funds it has been able to leverage its investment in NJ businesses to more than 62 times that amount—about $2.5 billion.
Edison Partners routinely participates in the New Jersey Founders & Funders events at the EDA’s Commercialization Center for Innovative Technologies (CCIT) in North Brunswick. Held semi-annually, these events enable early-stage businesses to meet with potential investors in 10-minute, one-on-one “speed dating” sessions to discuss strategy, business models and funding opportunities.
A major trend in state economic development programs across the country in recent years has been the partial privatization of ED agencies, usually in the form of public-private partnerships. These partnerships are structured like corporations, with a board of directors headed by the governor of the state and major business leaders holding board seats.
The public-private route has produced mixed results, generating complaints in a few locations about a lack of transparency, questionable credibility of job-creation claims and an “old boys club” mode of operation. But the most successful public-private agencies have tapped into regional business expertise to turbocharge growth.
It looks like NJ has taken this concept to the next level by investing in local VC funds. We’ll be an interested observer as the results of these investments are tallied in coming years.
Should state economic development agencies invest in venture-capital funds?