To the rescue
State provides financial help for technology startups that lose money
by Al Sullivan
Reporter staff writer
May 21, 2017 | 3601 views | 0 0 comments | 106 106 recommendations | email to a friend | print
ON THE RISE – Fusar, a Jersey City based technology company, started in a shared space in Hoboken and and now has nine employees.
ON THE RISE – Fusar, a Jersey City based technology company, started in a shared space in Hoboken and and now has nine employees.
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Ryan Shearman and his partner, the cofounders of Fusar, a Jersey City based technology company, were living in Hoboken when they put together an idea to close a technical gap in communication for people who sky dive, ski, or ride a motorcycle.

But unlike the days when people like Steve Jobs could develop a concept out of their family garage and then change the world, the two men knew they needed a place to work and live.

“We moved to Jersey City in October 2014,” he said.

They lived on one floor of a duplex and worked on the other while trying to make their dream a reality.

But time for development often conflicted with the need to raise capital.

“We were always running out of cash,” he said. “We couldn’t pay ourselves salaries. We conducted business on the first floor and lived on the second.”

A whole new platform

While overlapping technology is common in things like the I-Phone, allowing you to surf the internet, use the camera or take a photograph, such technology is lacking in many other areas, especially for people who are engaged in outdoor activities and sports.

The idea of their product is to create the same seamlessness, using tools such as the walkie talkie and camera, and to develop a range of accessory products for people engaging in these activities, expanding their abilities so they have the same level of connectivity as other mobile devices currently on the market.

Although startup tech companies like Fusar are fashionable these days, bringing to the market potentially innovative and sometimes revolutionary ideas, it takes a lot of money for early development costs, long before a product is ready for the market place.

“It takes time and resources to get from idea to the consumer market,” he said.

Corporations often have the staff and funding to conduct such projects. But as history has shown, many of the best ideas evolve out of small startup companies like Fusar, and the challenge is often how to fund your company long enough to reach the market.

Startups generally lose money for several years before they generate sales.

“We think we have a good product and we’re working out to get the word out,” he said. “We are heavily invested in this.”

Jersey of City and the Liberty Science Center recently launched a project to create an enclave that would promote homes for such startups in a cyber village.

“We could have used that when we started up,” he said.

Fortunately, his startup was able to raise money through investors. But the losses mounted.

Then they discovered a largely under-realized state program that helps tech and bio tech programs like his. It allows startups to sell off their losses to large corporations , which in turn claims these as write offs for tax purposes.

A program that helps startup technology companies

The New Jersey Economic Development Authority (EDA) launched the Technology Business Tax Certificate Transfer program in 1999, a $60 million state program that provides an avenue of funding for startups.

This program provides opportunities for early-stage companies to gain access to capital at a critical time in their development.

Administered by the Economic Development Authority and the New Jersey Department of the Treasury’s Division of Taxation, the NOL Program (for “net operating loss”) allows eligible technology and life sciences companies to sell unused New Jersey net operating losses and research and development tax credits to unrelated profitable corporations.

“Considered a lifeline by entrepreneurs around the state, no EDA program has been more highly-touted by the technology and biotechnology community than the NOL Program,” EDA Chief Executive Officer Melissa Orsen said. “The non-dilutive cash received through the program has helped hundreds of small businesses get through critical stages of development and ultimately flourish in the Garden State.”

To date, more than 500 companies have been approved for awards totaling over $905 million. Last year, 40 companies were approved to sell $35 million in benefits.
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“If you’re losing money, I can help.” – Kathleen Coviello
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Unprofitable New Jersey-based technology or biotechnology companies with fewer than 225 U.S. employees (including parent company and all subsidiaries) must meet several requirements to be eligible for the NOL program.

A company must have a pending or issued patent, copyright or exclusive license for the intellectual properties involved. They also must provide financial statements for two of the most recent years compiled, reviewed or audited by an independent CPA, and must not have made a profit during that period.

Help is on its way

“If you’re losing money, I can help,” said Kathleen Coviello, EDA Director of Technology and Life Sciences. “What we are looking to do is help these startups stabilize and begin hiring people. It takes time and money to get established and many of the startups are burning money. So this program can help them.”

Last year, of the 42 companies that took part in the program, 20 of these were in biotech, the rest in other technology. Biotech often needs infusions of cash because of the length of time it takes to get a product to market.

“Biotech is an economic driver in New Jersey,” she said. “But the number of tech firms is growing, and they need funding for software and other costs to get up and running.”

To qualify, the business has to be in New Jersey and remain in New Jersey for five years.

Unlike a bank loan, the money garnered through this program can be used for whatever needs the startup requires.

“But there has to be a minimum of job threshold,” she said.

Some companies that started out with one and two employees in this program have taken off, and now employ in excess of 100 people each.

While a startup can continue to come back for more as long as it continues to lose money, there is a $15 million lifetime cap.

The state is currently taking applications for the program to sell off losses from 2016. A complete list of requirements and program details can be found at http://www.njeda.com/nol.

To be eligible to participate, companies must apply online by June 30, 2017. Also, in order to sell benefits generated in 2016, companies must file their corporate business tax returns with the NJ Division of Taxation by June 30, 2017. Applicants should expect to hear by the end of August if their applications are being recommended for EDA Board approval.

Al Sullivan may be reached at asullivan@hudsonreporter.com.

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