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New strategy for incubators as state funding remains elusive

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New Jersey's 14 new-venture incubators no longer receive state funding to provide seed capital and deliver programs and services to their member companies. So now they're exploring a new strategy — becoming equity partners in some of the new companies they help launch, then using the profits from successful ventures to support new startups.

Suzanne Zammit is president of the New Jersey Business Incubation Network, and director of the Rutgers–Camden incubator. She said the incubators lost state funding several years ago, and initially were allocated $500,000 in the current state budget, only to be zeroed out by the end of the budget process.

With future state funding unlikely, "We have changed course, and now we're working on creating a self-sustaining incubation system around the state," Zammit said.

NJBIN has lined up two investors, and is looking for more, to launch a seed capital fund to invest in the incubator ventures. In addition, the incubator itself would become a limited partner in ventures funded by the seed fund, with the incubator sharing in the profits generated if the venture succeeds — usually by getting acquired.

Zammit said the rule of thumb is that one in 10 startups is likely to hit it big. "If one of them hits it big, that return could fund the incubation system for years to come," she said. And the seed fund "will help the incubators attract these really innovative companies into New Jersey. It is a marketing tool — early-stage companies go where the money is."

She said the incubator would partner with the investors by "providing the infrastructure and good, quality deal flow to the investors. We know how to vet companies interested in becoming part of the incubation system: we provide the education and support structure."

Michel Bitritto, director of the Meadowlands Regional Accelerator, an incubator based at Bergen Community College, said she supports NJBIN's seed fund initiative. "I think it's a great idea. Now, we will see if we can attract the attention of investors."

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Beth Fitzgerald

Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.

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