N.J. Admin. Code § 19:31X-1.7

Current through Register Vol. 57, No. 1, January 6, 2025

Section 19:31X-1.7 - Qualified venture firm application, certification, and agreement

(a) The Authority shall establish an application process and determine the form and manner through which a venture firm may make and file an application for certification as a qualified venture firm. The Authority may accept applications on a rolling basis or on a date set by the Authority.

(b) Each applicant venture firm shall first submit an application for certification as a qualified venture firm, including the following information and supporting documentation in an application format prescribed by the Authority:

1. The name of the venture firm, address, entity form, country and state of formation, date of formation, Federal and state tax identification number, phone number, and website address of the venture firm;

2. The name, title, email, address, and phone number of the primary point of contact of the venture firm;

3. The name, title, email, phone number and address of the consultant assisting with the application, if applicable, and of the legal counsel and the accountant for the venture firm;

4. The name of any company managing the venture firm; the list of all companies beneficially owning, through rights, options, convertible interests, or otherwise, more than 15 percent of the voting securities or other voting ownership interests of the venture firm; and all companies controlling the direction of investments of the venture firm;

5. The limited partnership or limited liability company agreement for the venture firm active fund(s) that the qualified venture firm anticipates will co-invest alongside the Fund;

6. The most recent annual audited financial statement, a list of all funds managed or controlled by the venture firm, the most recent quarterly financial statement for all such funds, the assets under management of the venture firm, and any other documentation demonstrating that the venture firm is not excluded from eligibility pursuant to (d)1 below, all of which must be current as of the date of its application. The venture firm shall agree to submit to the Authority any valuations of the equity capitalization and net assets completed subsequent to the valuation included in its most recent financial statements and through the date the determination for certification is made and as may be required by the Authority;

7. Any current and past organizational charts of the venture firm, which shall list of all principals, managers, and any other employees of the venture firm that will direct qualified investments; if the firm does not have any current or past organizational charts, current and past lists of such principals, managers, and employees; a description of the professional experience, including, but not limited to, the number of years of investment experience in the venture capital or private equity sectors, detailed work history, and employment references, of the senior management team of the venture firm and of the principals, managers, and employees that will direct qualified investments; and any other documentation demonstrating that the venture firm is not excluded from eligibility pursuant to (d)2 below, all of which must be current as of the date of its application. The venture firm shall agree to report any change to the organizational chart and list of principals, managers, and employees through the date the determination for certification is made and as may be required by the Authority;

8. Any current and past policies or plans for diversity, equity, and inclusion for the venture firm's internal operations, including, but not limited to, hiring, and for the venture firm's investments, and information and documentation evidencing the venture firm's compliance with such policies;

9. A tax clearance certificate from the New Jersey Division of Taxation pursuant to P.L. 2007, c. 101, which shall also satisfy the requirement for registration to do business in this State;

10. A list of all of the New Jersey Department of Labor and Workforce Development, the Department of Environmental Protection, and the Department of the Treasury permits and approvals or obligations and responsibilities with which the venture firm is associated with or has an interest in. The list shall identify the entity that applied for or received such permits and approvals or have such obligations and responsibilities, such as by program interest numbers or licensing numbers. The venture firm shall also submit a written certification by the qualified venture firm's managing individual stating that the venture firm satisfies the criteria at (e) below to be in substantial good standing, or if a compliance issue exists, has entered into an agreement, with the Department of Labor and Workforce Development, the Department of Environmental Protection, and the Department of the Treasury;

11. A completed legal questionnaire disclosing all relevant legal matters, in accordance with the Authority debarment and disqualification rules at N.J.A.C. 19:30-2;

12. Agreement and consent for the Authority to publicize the venture firm's participation in the program, once qualified, and to publicize the qualified venture firm's approved qualified investments into qualified businesses;

13. A list of all office locations, and associated lease agreements, the qualified venture firm has in the State, if applicable;

14. The name of any businesses with a place of business in the State in which the venture firm has invested during the five calendar years prior to the date of application, and the dates of investment(s), location of business headquarters, and documents as shall be required by the Authority to evidence such investments;

15. A description of any regional investment policy of the venture firm that includes the State;

16. An investor pitch deck for the intended qualified venture firm active fund or, if not yet available, the most recent investor pitch deck prepared by the venture firm;

17. If a venture firm proposes to agree to dedicate a greater portion of qualified investments into qualified businesses located within incentive areas as set forth at (c)4 below, the list of all investments in the past five years in businesses located within incentive areas;

18. A certification by the qualified venture firm manager that the information contained in the application is true and accurate under the penalty of perjury; and

19. Any other relevant information as determined by the Authority for a specific application.

(c) The Authority shall certify, or refuse to certify, a venture firm as a qualified venture firm based on the criteria for certification set forth in section 28 and subsections b. and c. of section 29 at P.L. 2020, c. 156 (N.J.S.A. 34:1B-296), (d) and (e) below, and the weighted criteria by which the Authority will evaluate all venture firms applying in the same calendar year. The Authority shall establish, and provide public notice through its website, of the weighted criteria and a minimum acceptable score. The weighted criteria shall include, but not be limited to:

1. The management structure of the venture firm, including, but not limited to:

i. The quality of the leadership of the venture firm in the innovation ecosystem in the State, including, but not limited to, the venture firm's willingness to work with the Authority to support targeted industries and the innovation ecosystem in the State and to locate in the State;

ii. The investment experience of the principals and the venture firm with qualified businesses;

iii. The knowledge, experience, and capabilities of the venture firm in subject areas of its investment focus relevant to high-growth businesses in the State;

iv. The tenure and turnover history of principals and senior investment professionals of the venture firm;

v. Whether the State's approved maximum aggregate qualified investments with the venture firm under this program, if the State were to approve up to two such qualified investments, would exceed 15 percent of the total invested with the venture firm by all of its investors, including investments in any Evergreen special purpose vehicles;

vi. The venture firm's stage of fundraising for their proposed qualified venture firm active fund; and

vii. Whether management fees, carried interest, expenses, and the remuneration of the general partner or manager for their proposed qualified venture firm active fund is similar to those of peer venture firm investors;

2. The venture firm's investment strategy, including, but not limited to:

i. The venture firm's track record of investing in high-growth businesses;

ii. Whether the investment strategy of the venture firm's proposed qualified venture firm active fund is focused on high-growth businesses, including the percentage of the investment identified to be invested in New Jersey or surrounding geographic areas; and

iii. The performance history of the general partner or fund manager and the venture firm based on a review of investment returns on individual funds on an absolute basis and relative to peers;

3. The venture firm's business location(s), with preference given to venture firms that are located in incentive areas; and

4. The venture firm's proposed structure and policy of investments in qualified businesses, with preference given to venture firms that agree to dedicate a greater portion of qualified investments into qualified businesses located within incentive areas compared to past investments made by the venture firm.

(d) The Authority shall not certify a venture firm as a qualified venture firm if the venture firm:

1. Has less than $ 10 million in any combination of one or more of the following: equity capitalization of funds managed by the qualified venture firm or an affiliate of the qualified venture firm, net assets of funds managed by the qualified venture firm or an affiliate of the qualified venture firm, or written commitments of cash or cash equivalents. The evaluation of such equity capitalization and net assets shall be included in the most recent financial statement reported by the venture firm, which must be dated within 150 days prior to the date the determination for certification is made. The value of equity capitalization and net assets shall be the lesser of the value included in the most recent financial statement or subsequent valuation prior to the date the determination for certification is made. The written commitments must be executed and in effect on the date the determination for certification is made;

2. Has fewer than two principals or persons employed to direct the qualified investment with at least five years of money management experience, which shall be either professional money management experience or significant angel investment experience. Professional money management experience shall include, but is not limited to, operational and investment oversight, in the venture capital or private equity sectors, including, but not limited to, investment firms, investment banks, asset management or similar investment management institutions, or family office funds. To be significant, angel investment experience shall consist of $ 100,000 of aggregate investments and two investments per year. The experience shall be met as of the date the determination for certification is made; or

3. Is not in compliance with the requirements of any agreement, whether related to the program or otherwise, with the Authority.

(e) Prior to certifying a venture firm as a qualified venture firm, the Authority shall confirm with the Department of Labor and Workforce Development, the Department of Environmental Protection, and the Department of the Treasury that the venture firm is in substantial good standing with the statutes, rules, and other enforceable standards of the respective department, or, if a compliance issue exists, the venture firm has entered into an agreement with the respective department that includes a practical corrective action plan, as applicable.

1. Substantial good standing shall be determined by each department and mean, at a minimum, that the venture firm:

i. As to the Department of Labor and Workforce Development and the Department of Environmental Protection:

(1) Is in substantial compliance with all material statutes, rules, and other enforceable standards of the respective department that apply to the venture firm; and

(2) Has no material violations of those statutes, rules, or other enforceable standards that remain substantially unresolved through entry into a corrective action plan, or other agreement with the department, with respect thereto; and

ii. As to all other departments, has no unpaid liability in excess of any threshold dollar amount(s) that may be established by each respective department.

2. If the Department of Labor and Workforce Development, the Department of Environmental Protection, or the Department of the Treasury promulgates, or issues, its own more stringent rule or standard defining the term "substantial good standing," the respective department shall use such rule or standard to determine whether a venture firm is in substantial good standing.

3. The Authority may contract with an independent third party to perform a background check on the venture firm.

(f) The Authority shall provide written notification to each venture firm that is certified as a qualified venture firm by the Authority and shall provide written notification to each venture firm that the Authority refuses to certify as a qualified venture firm, communicating in detail the grounds for the Authority's refusal.

(g) The Authority shall provide the qualified venture firm with a qualified venture firm agreement. Absent extenuating circumstances or prior written consent by the Authority, the Authority's approval of certification shall expire if the qualified venture firm does not execute and return the qualified venture firm agreement within the time prescribed by the Authority. The qualified venture firm agreement shall include, but not be limited to, the following:

1. The amount of capital allocated to the qualified venture firm from the Fund to make a qualified investment in the qualified business, which shall be subject to the availability of funds in the Fund and the requirements at N.J.A.C. 19:31-25.8. An allocation of funds shall not reserve funds;

2. A requirement for the qualified venture firm to make investments in qualified businesses that equal or exceed the amount of capital that the qualified venture firm receives from the Fund under the program;

3. A requirement that the qualified venture firm cause an audit of the qualified venture firm's books and accounts of any Evergreen special purpose vehicle holding qualified investments, which a certified public accountant, licensed in accordance with the Accountancy Act of 1997, P.L. 1997, c. 259 (N.J.S.A. 45:2B-42 et seq.), or licensed in accordance with the laws of another state, shall conduct at least once each year in which the qualified venture firm is in receipt of Fund money or in which the qualified venture firm is responsible for the management of Fund money allocated to the qualified venture firm by the Authority;

4. A requirement that the qualified venture firm enter into a qualified business side agreement, either directly or as the Evergreen special purpose vehicle member, with each qualified business that receives a qualified investment, which agreement shall, at a minimum, require the qualified business to:

i. Use the qualified investment to support its business operations in this State by maintaining a place of business in the State and by:

(1) Maintaining its principal business operations in this State;

(2) Having at least 50 percent of its full-time employees filling a position in New Jersey; or

(3) Having at least 50 percent of wages paid to employees filling a full-time position in New Jersey;

ii. Provide the information pertaining to the qualified business necessary for the qualified venture firm to submit the annual report required pursuant to section 31 at P.L. 2020, c. 156 (N.J.S.A. 34:1B-299) and N.J.A.C. 19:31X-1.9(a);

iii. Permit the Authority to exercise the remedies as set forth at N.J.A.C. 19:31X-1.10(h), (i), and (j) for the events set forth in those subsections;

iv. Adhere to an ongoing requirement to provide the qualified venture firm and the Authority with information that will enable the Authority to administer the program;

v. Accept indemnification and insurance requirements;

vi. Comply with a provision permitting an audit of the records of the qualified business related to the qualified business's requirements under the program, including, but not limited to, use of the qualified investments and employee information, from time to time, as the Authority deems necessary; and

vii. Agree with default and remedies, including, but not limited, to a default if the qualified business made a material misrepresentation to the Authority or if the Authority debars or disqualifies the qualified business pursuant to N.J.A.C. 19:30-2;

5. A requirement that the qualified venture firm, upon the identification of a qualified investment and approval by the Authority of the qualified investment, create an Evergreen special purpose vehicle, utilizing such forms of agreement as shall be approved by the Authority, for the qualified investment of the Fund. The Evergreen special purpose vehicle shall be managed by the qualified venture firm or the same affiliate of the qualified venture firm that manages the qualified venture firm active fund. The Authority, at its own discretion, may determine that the qualified investment shall be made through the same Evergreen special purpose vehicle as other qualified investments with the same qualified venture firm active fund;

6. A requirement that the qualified venture firm, upon the identification of a qualified investment and approval by the Authority of the qualified investment, indicate the amount of follow-on investment the qualified venture firm shall reserve, and periodically, but no less frequently than annually through the annual report required pursuant to N.J.A.C. 19:31X-1.9(a), provide updates concerning this amount;

7. Agreement by the qualified venture firm that it shall charge an Evergreen special purpose vehicle only management fees, carried interest, and direct expenses necessary solely to comply with this program; that the Authority shall transfer funds to an Evergreen special purpose vehicle for payment of management fees and direct expenses only upon a capital call; and that the management fees, carried interest, and direct expenses that the qualified venture firm may charge shall be no greater than the maximum established by the Authority from time to time, and published on the Authority's website, based on management fees and carried interest charged by peer venture firms and on reasonable costs of direct expenses;

8. A requirement that the qualified venture firm notify the Authority of any follow-on investment by the qualified venture firm active fund as set forth at N.J.A.C. 19:31X-1.8(j) and agree to fund follow-on investments from the Evergreen special purpose vehicle;

9. Agreement and consent by the qualified venture firm that the Authority may publicly disclose the qualified venture firm on the list of qualified venture firms participating in the program and publicize any qualified investment and follow-on investment by the qualified venture firm from the Fund;

10. Agreement to provide to the Authority, and consent that the Authority may publicly disclose, any tax expenditure information as described at paragraph (8) of subsection b. of section 1 at P.L. 2009, c. 189 (N.J.S.A. 52:27B-20a) and any information necessary for the report required pursuant to N.J.S.A. 34:1B-301 and N.J.A.C. 19:31X-1.15;

11. Agreement by the qualified venture firm that once funds are allocated and received for a qualified investment, such qualified investment must be made within 90 days of the approval of the qualified investment unless the Authority gives prior written consent to an extension;

12. A requirement to provide all fully executed agreements evidencing all qualified venture firm active fund investments in the qualified business, including any follow-on investments by the qualified venture firm active fund;

13. A requirement to provide all fully executed agreements evidencing the qualified investment and any follow-on investment in the qualified business;

14. An ongoing requirement to provide the Authority with information that will enable the Authority to administer the program;

15. A provision authorizing the Authority to withhold or cease paying management fees and direct expenses as set forth at N.J.A.C. 19:31X-1.9(d), forfeiting the carried interest as set forth at N.J.A.C. 19:31X-1.9(e), and permitting the Authority to exercise the remedies as set forth at N.J.A.C. 19:31X-1.10(c), (d), (e), (f), and (g) for the events set forth in those subsections;

16. Representations that the qualified venture firm is in substantial good standing or meets the agreements requirements set forth at (e) above;

17. A provision permitting an audit of the records of the qualified venture firm related to the qualified venture firm's participation in the program, including, but not limited to, the management of all Evergreen special purpose vehicles and any qualified investment into a qualified business, from time to time, as the Authority deems necessary;

18. A provision permitting the Authority to amend the agreement;

19. A provision establishing the conditions under which the Authority, the qualified venture firm, or both, may terminate the agreement;

20. Indemnification and insurance requirements;

21. Default and remedies, including, but not limited, to a default if the qualified venture firm made a material misrepresentation on its application or if the Authority debars or disqualifies the qualified venture firm pursuant to N.J.A.C. 19:30-2; and

22. Such other provisions as shall be required by the Authority.

N.J. Admin. Code § 19:31X-1.7

Recodified from 19:31-25.7 56 N.J.R. 807(a), effective 5/6/2024