New Jersey Incubators Struggle to Keep Companies in State

Business incubators are “a way of increasing the chance of success for small companies,” says Michel Bitritto, president of the New Jersey Business Incubation Network, a Newark-based consortium of 14 business incubators that have been recognized by the state’s Commission on Science and Technology in Trenton.

Because many of the state’s emerging companies attract large investment dollars, incubators are a vital economic development tool for New Jersey, adds Bitritto, who also heads the Enterprise Development Center (EDC) at the New Jersey Institute of Technology in Newark. The approximately 600 clients supported by the state’s incubators collectively generated revenues of $200 million in 2006, she says. At the end of 2006, those firms had also attracted $90 million from third-party funding sources that included the state and federal governments, venture capitalists and angel investors.

Out-of-state investors, however, are posing a threat by snapping up promising young New Jersey companies, Bitritto says. Many venture capitalists invest in startups, but then require the companies to relocate in order to be more closely managed, she explains. At the EDC, nearly 40 percent of incubator graduates that have received funding from venture capital or angel investors in the past two years have moved out of the state, she says.

“Third-party investors from other states have been more aggressive and risk-taking,” Bitritto notes. States such as New York and Pennsylvania, she adds, are actively recruiting small companies as part of their economic growth strategies. New Jersey investors, on the other hand, tend to take a wait-and-see approach before they decide to invest in a young company. Also, the Garden State “appears to be more actively courting large corporations,” she says.

Additionally, most of the early-stage venture funds, which often invest in emerging companies that have just left the incubator stage, tend to be in Pennsylvania, Maryland and other states, says Frank Keith, director of the Rutgers Camden Technology Campus Inc. in Camden. “We have some very successful venture funds in the state of New Jersey, but most of them are later-stage funds,” he says.

But Keith says that in its six-year history, the Technology Campus has lost only one graduate to another state. Meanwhile, none of the companies at the seven-year-old Applied Communications and Information Networking (ACIN) Technology Center, also in Camden, has left New Jersey because of an out-of-state investor, according to Lou Bucelli, ACIN’s entrepreneur in residence.

“It really is hard to displace a company from state to state,” says Bucelli. “It really has to be more than just money.”

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