Why NJ Startups Have a Hard Time Getting Funded

“The last 10 percent it takes to launch something takes as much energy as the first 90 percent.”

–Rob Kalin, co-founder of Etsy

There’s no doubt that founding a startup is a tough job. It takes time and sacrifice. And money. The search for funds to back a startup is a particularly daunting task, even though the last few years have brought new opportunities such as crowdsourcing, grants focused on startups, and startup incubators.

It’s a given that founding a company is hard. But to be a founder in New Jersey these last two decades has been even harder. Is it getting easier? Are we making strides to attract and retain founders, talent and investors? Yes and yes, says lifelong resident and founder, Jennifer Crews.

But it still takes grit, tenacity and a startup support community — and it’s that last one that Crews, who is the founder of Flock, a cloud-based service for families, says she has found at Bell Works with vi, an innovation hub for those who want to launch and grow companies.

From her own experience

A former corporate executive and vice president with Dun & Bradstreet, a company providing commercial data to businesses on credit history, Crews has for the past seven years, turned her focus to the local economy and what it will take to amplify tech activity in Monmouth County and across the state. As both a consultant to businesses here and as founder she says she’s found it tough.

“We don’t have an especially founder-friendly ecosystem compared to other places in the country,” Crews said. “I have witnessed this for a while and now, as a founder, I am experiencing it first hand.” Her startup, Flock, is a service that puts families on autopilot so parents have more freedom to focus on what fulfills them.

But, Crews said, the founder atmosphere in the region isn’t stalled, it just takes some digging to find.

“There are events and people who are working to build tech communities and organizations who seek to play a role in fostering entrepreneurial activity,” she said.

She sees this happening at Bell Works. An example of this would be most specifically with Brand New J, an organization working to revive the startup environment in New Jersey. The group is made up of local thought leaders, entrepreneurs, investors and innovators who have a vested interest in fostering a culture of success for startups and entrepreneurs in the Garden State. Bell Works and vi are heavily involved in Brand New J and support its mission to keep local talent in the state, create an atmosphere conducive to startups, and make New Jersey the place to be for entrepreneurs.

The challenges to raising a company in the Garden State, she said, aren’t as simple as a lack of angel investors or incubation space. It’s a subtle lack of startup culture.

“We can create a ton of activity and invest a lot of effort, but the key to building a robust startup ecosystem is to make New Jersey a place where founders want to do business. Attracting founders is key.”

A fast way to do that she says is eliminating the capital gains tax.

“It would give founders a compelling reason to start a company here,” Crews said. “More founders starting exciting companies leads to more talent coming into, or staying in the state. More founders lead to more service firms that cater to early stage companies. More founders  lead to new standards for doing business, like short term leases. For example, in NJ corporate real estate with a five- to 10-year lease is the norm and what building owners expect, but that’s not a realistic commitment for a pre-revenue company to make.”

Jay Bhatti, a venture capitalist with Brand Project and who is based out of Bell Works, agrees with Crews on this front. At TEDxNavesink in April he discussed eliminating the capital gains tax in New Jersey for startups who sell their startup after a successful run.

“Let’s reward the victory,” Bhatti said. “If you move to New Jersey or if you start an innovative company in New Jersey, you don’t have to pay capital gains tax when you have an exit event. The result is more companies coming to New Jersey and an increased tax base.”

Jay encourages support of this idea by signing a petition here.

Many NJ agencies are working to help nurture the startup environment in the Garden State and help provide financial incentives to set up shop in the state. Grow NJ, a job creation and retention incentive program from the New Jersey Economic Development Association, is making great strides in providing NJ entrepreneurs financial assistance. They’re strengthening New Jersey’s competitive edge by offering tax credits to businesses that are creating or retaining jobs in New Jersey. The Grow NJ Assistance program awarded incentives to a total of 102 projects tied to the creation of 12,598 new, full-time jobs and 13,956 retained jobs from December 2013 to April 2015.

The Innovation New Jersey Coalition is a coalition of businesses, trade associations and higher education institutions who are working to strengthen and enhance the culture of innovation in New Jersey. One way they do this is by helping entrepreneurs find venture funds and tax credits to offset financial burden.

Choose NJ is doing the same for the startup environment in the state. The organization, privately funded by leaders from the state’s top companies, venture, labor organization and higher education institutions, works to stimulate job creation and capital investment, and collaborate with the State’s universities to encourage research, discovery, and innovation.

David Sorin, managing partner of McCarter English’s East Brunswick office and the head of the Venture Capital and Emerging Growth Companies practice, sees these financial incentives provided by New Jersey coalitions working.

“Never has there been a better time to be an innovator or entrepreneur than right now,” Sorin said. “There has been a lot of capital available to companies. There are resources available today so companies don’t have to reinvent the wheel, and as a result, less capital is necessary to get new products and solutions to market.”

Advice for founders

Crews admits that in growing her company Flock in New Jersey she faces funding challenges that founders might not in Silicon Valley or Boulder where there is a culture that understands and nurtures startups, where angel investors are willing to buy into a concept and invest from a pitch deck. NJ is a harder environment, but it isn’t bleak, she said. In her own journey to funding Crews took note of what founders can do to better position themselves.

Here’s her advice:

• Connect with a New Jersey startup community (like the one forming at Bell Works)
• Find potential co-founders and pull together a few people who are willing to work for equity (because there is no cash yet)
• Hire professional service providers who have pricing structures suitable for very early-stage companies, as opposed to those geared more toward serving established businesses

Events like the panels and meetups hosted at Bell Works are vital for creating connections and building community, Crews said, specifically mentioning the NJ Strategic Design and Tech Meetups sponsored by vi. Ari Rabban of Phone.com agrees, citing the meetups happening around the state as vital to changing the tech startup atmospher in the state.

“This grassroots activity or bottom up approach is, I believe, very important to get more of an entrepreneurial spirit going,” Rabban said.  “When individuals interact, network and listen to successful entrepreneurs, share stories etc., it gets infectious and leads to more opportunities and new entrepreneurs.”

“Being a founder is a lonely proposition, especially in the beginning,” Crews said. “Every time I come together with others who are living in the space of entrepreneurship I leave with something valuable.”

Besides the tangible benefits of connections to funders and service providers that Bell provides, Crews says it’s the inspiration and encouragement she’s found there that has kept her going. “Bell Works and vi are doing a great job of building community right here in New Jersey.”