N.J. Admin. Code § 19:31X-1.8

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

Section 19:31X-1.8 - Qualified businesses and qualified investments

(a) The Authority shall allocate and transfer money credited to the Fund to one or more qualified venture firms for qualified investments as set forth in this section; provided that no more than two qualified investments shall be made with each qualified venture firm in a calendar year.

(b) The Authority shall have a goal for 25 percent of the Fund money that is allocated to qualified venture firms to be reserved for investment in qualified businesses located in opportunity zones. A qualified business shall be considered as located in an opportunity zone if the qualified business has its primary business location in an opportunity zone. For the purposes of this subsection, a primary business location is the location of a qualified business that has the most full-time employees, provided that if two business locations have the same number of full-time employees and each such location has more full-time employees than all other locations, then either of such locations shall qualify as a primary business location.

(c) The Authority shall undertake a disparity study of investment by venture firms in women- and minority-owned business enterprises in this State. Based on the finding of the disparity study, the Authority, following Authority Board approval, may institute a set-aside plan to ensure that Fund money allocated to qualified venture firms is reserved for investment in women- and minority-owned business enterprises in this State.

(d) Any venture firm that has been decertified pursuant to N.J.A.C. 19:31X-1.10(c) shall not be approved for a qualified investment unless and until the venture firm reapplies and is approved for certification pursuant to N.J.A.C. 19:31X-1.7.

(e) The Authority shall establish an application process and determine the form and manner through which a qualified venture firm may make and file an application for a qualified investment. The Authority may accept applications on a rolling basis or on a date set by the Authority, provided that the Authority shall not accept an application based on a qualified venture firm initial investment made more than 90 days prior to the submission of the completed application. The Authority shall provide public notice of the dates for the submission of applications on its website in advance of the initial date for applications. The qualified venture firm shall provide the following information in an application format prescribed by the Authority:

1. With regard to the qualified venture firm and the proposed qualified investment:

i. Information requested pursuant to N.J.A.C. 19:31X-1.7(b);

ii. Size of proposed qualified investment requested by the qualified venture firm in the proposed business and the amount invested or proposed to be invested by the qualified venture firm;

iii. Executed stock purchase agreement for the co-investment from the qualified venture firm active fund, or most recent draft term sheet if the co-investment has not yet been made; the limited partnership agreement or equivalent agreement for the qualified venture firm active fund; and the executed subscription documents for the qualified venture firm active fund;

iv. The amount of the reserve set aside by the qualified venture firm for future investments in the proposed business and any related reserve policy applicable to such reserve;

v. 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;

vi. Investment analysis for the qualified venture firm's investment in the qualified business and supporting documentation, and a certification from the qualified venture firm's managing individual that any projections or forecasts provided to the Authority are prepared in good faith and are based upon assumptions that the qualified venture firm's managing individual concludes, in light of the circumstances in which they are made, are reasonable. If the proposed business has not yet recorded 12 months of revenues or customers and has not raised third-party capital, the investment analysis shall include qualified venture firm's prepared base case future projections with projected revenues, customers, or fundraising for the next three to five years;

vii. Names of individuals or entities with ownership, through rights, options, convertible interests, or otherwise, of the venture firm; that manage the venture firm; or that have rights to control the direction of investments of the venture firm; and

viii. 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;

2. With regard to the proposed business:

i. The name, address, entity form, country and state of formation, date of formation, copy of formation documents and New Jersey registration, Federal and state tax identification number, phone number, and website address of the proposed business;

ii. The name, title, email, address, and phone number of the primary point of contact for the proposed business;

iii. A description of the proposed business, including, but not limited to, how the proposed business is engaged in a targeted industry, the primary existing or expected revenue streams, and the primary existing or expected expenses;

iv. Capitalization table of the proposed business;

v. One or more of the following to substantiate that the proposed business is a high-growth business if the business has recorded 12 months of revenues or customers or has raised third-party capital:

(1) Current and past audited, reviewed, or management prepared income statements of the proposed business;

(2) Current and past customer lists of the proposed business if the proposed business has customers;

(3) Executed term sheet and stock purchase agreement of the prior priced round of equity fundraising of the qualified business;

vi. If the qualified venture firm is applying for the proposed business to be a university spin-off business, a copy of the certificate of incorporation or formation for the proposed business and its earliest predecessor entity, documentation evidencing the proposed business's intellectual property, and an explanation of how the proposed business is a university spin-off business;

vii. If the qualified venture firm is applying for the proposed business pursuant to (g)5i below, documentation evidencing the proposed business's intellectual property, how the intellectual property is core to the proposed business, and how the intellectual property was developed at a New Jersey-based college or university;

viii. If the qualified venture firm is applying for the proposed business as a "minority-owned business" or "women-owned business" pursuant to (g)5iii below, the certification from the State of the proposed business as such a business;

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

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

xi. 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 proposed business 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 proposed business shall also submit a written certification by the chief executive officer, or equivalent officer for North American operations, stating that the proposed business satisfies the criteria at N.J.A.C. 19:31X-1.7(e) 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;

xii. All locations of the proposed business in New Jersey, the number of full-time employees in each such location, and a copy of the deed, lease agreement, or other agreement evidencing each location;

xiii. A list of all full-time employees, including, but not limited to, employee residency, payroll records, a copy of New Jersey WR-30 and Federal Form 941 for the most recent quarter, and offer letters for all full-time employees hired after the filing of such forms;

xiv. If the qualified venture firm has made its initial investment in the proposed business, certification from each of the qualified venture firms and proposed businesses that there has been no material adverse change in the business, finances, or operations of the proposed business since the date of such investment;

xv. Acknowledgement and consent by the proposed business that the Authority will publicly disclose the qualified investment into the proposed business once a qualified investment is approved 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; and

xvi. Certification by the chief executive officer of the proposed business, or equivalent officer for North America, that all information provided by the proposed business to allow the Authority to evaluate the proposed business is true and accurate under the penalty of perjury;

3. Certification by the qualified venture firm's managing individual that all information provided pertaining to the qualified venture firm is true and accurate under the penalty of perjury; and

4. Any other information relevant to the evaluation of the qualified investment and the qualified business, as determined by the Authority.

(f) The Authority shall evaluate the proposed business to determine if such business is a qualified business as defined in the program and satisfies the requirement that such business meets the definition of a high-growth business.

(g) The Authority shall approve a qualified investment into the qualified business if, absent extenuating circumstances or the Authority's prior written consent, the qualified venture firm is in compliance with the requirements of the qualified venture firm agreement and this program, including, but not limited to, the annual report pursuant to N.J.A.C. 19:31X-1.9, and the proposed business is a qualified business, based on the following:

1. The Authority shall not make a qualified investment in an amount exceeding the funds available and not reserved in the Fund;

2. The Authority shall not make a qualified investment that exceeds the maximum amounts of investment established from time to time by the Authority based upon the aggregate amount of qualified investments into a single qualified business, into a single targeted industry, or as determined by other categories or factors based on diversification of funds or the investment policies and goals of the State. The Authority shall publish these maximum amounts on its website;

3. The Authority shall not make a qualified investment if the Authority determines that a qualified investment would create an undue financial advantage pursuant to N.J.A.C. 19:31X-1.5(d);

4. The Authority shall invest the amount of funds requested for a qualified investment by a qualified venture firm in an amount equal to the qualified venture firm's initial investment, subject to all other restrictions in the Act and this subchapter;

5. The maximum amount of a qualified investment in a qualified business and any affiliates of the qualified business shall not exceed $ 5,000,000, except that such $ 5,000,000 limit shall be increased to $ 6,250,000 if the qualified business:

i. Utilizes intellectual property that is core to its business model and was developed at a New Jersey-based college or university;

ii. Is considered a university spin-off business, as determined by the Authority; or

iii. Is certified by the State as a "minority-owned business" or a "women-owned business" pursuant to P.L. 1986, c. 195 (N.J.S.A. 52:27H-21.17 et seq.);

6. If a qualified venture firm requests to make a qualified investment in the qualified business in the same round of equity fundraising for which the Authority has previously approved a qualified investment by a different qualified venture firm, the Authority shall approve the later request provided that the aggregate qualified investments in the qualified business does not exceed the maximum amount at (g)5 above;

7. In no event shall the Authority make a qualified investment of less than $ 100,000 per qualified investment; and

8. The Authority shall not make a qualified investment if the Authority determines that the qualified venture firm or the proposed business is not in substantial good standing or if a compliance issue exists, has entered into an agreement, as set forth at N.J.A.C. 19:31X-1.7(e).

(h) The Authority shall provide written notification to the qualified venture firm of the approval or declination of the application for a qualified investment and, if approved, the amount allocated for the qualified investment.

(i) A qualified venture firm that has made and entered into a qualified venture firm agreement is authorized to make qualified investments in one or more qualified businesses approved by the Authority from Fund money allocated to the qualified venture firm by the Authority at the times, in the amounts, and subject to the terms and conditions that the qualified venture firm determines to be necessary and appropriate, subject to the terms and conditions of the qualified venture firm agreement, the Evergreen special purpose vehicle governing agreement, the qualified business side agreement, this subchapter, and the Act.

(j) A qualified venture firm shall provide written notice to the Authority within 30 days after the date the qualified venture firm decides to make a follow-on investment from a qualified venture firm active fund in a qualified business. A qualified venture firm will be considered to have decided if there is an agreed upon or executed term sheet with the qualified business. The Authority shall determine whether to make a follow-on investment based on the following:

1. The Authority shall not make a follow-on investment if the Authority determines that the qualified venture firm or the qualified business is not in substantial good standing, or if a compliance issue exists, has not entered into an agreement, as set forth at N.J.A.C. 19:31X-1.7(e). The Authority may require updated information from the qualified venture firm or the qualified business to make this determination;

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

3. The Authority shall not make a follow-on investment in an amount exceeding the funds available in the Fund that are not reserved or are reserved for a follow-on investment with the qualified venture firm into the qualified business;

4. The Authority shall have the right to make a follow-on investment from the Fund through the corresponding Evergreen special purpose vehicle into the qualified business in the same ratio to the qualified venture firm's follow-on investment as the ratio of the qualified investment to the qualified venture firm's initial investment;

5. At its discretion, the Authority may decline to make a follow-on investment if the qualified venture firm is decertified or is not in compliance with the requirements of the qualified venture firm agreement, the Evergreen special purpose vehicle governing agreement, and this program, including, but not limited to, the annual report pursuant to N.J.A.C. 19:31X-1.9, or if the qualified business is not in compliance with the requirements of the qualified business side agreement or any requirement of the program;

6. Notwithstanding any provision in this subchapter to the contrary, the maximum follow-on investment from the Fund into a qualified business shall not exceed the lesser of:

i. The amount remaining after reducing the maximum amount allowed for the qualified investment by the aggregate of all follow-on investments in the qualified business through any Evergreen special purpose vehicle in the previous 12 months;

ii. The amount that would cause the aggregate amount invested from the Fund in the qualified business and any affiliates of the qualified business to exceed a percentage of the total amount in the Fund, plus all capital currently invested, as established by the Authority from time to time, but in no event greater than 15 percent; and

iii. The amount that would cause the aggregate amount invested from the Fund through any Evergreen special purpose vehicle managed by the qualified venture firm, or an affiliate of the qualified venture firm, in any qualified business to exceed 15 percent of the total invested in such qualified business by all funds managed by the qualified venture firm and any affiliates of the qualified venture firm, including investments through any Evergreen special purpose vehicles.

(k) The Authority shall reserve the following amounts for each qualified venture firm in relation to a qualified business, as follows:

1. For follow-on investments, an amount in the same ratio to the reserve to which the qualified venture firm has certified in its annual report pursuant to N.J.A.C. 19:31X-1.9(a)6 as the ratio of the qualified investment to the qualified venture firm's initial investment;

2. The Authority shall reserve the amount equal to the lesser of the projected management fees payable to the Evergreen special purpose vehicle manager or the maximum management fees allowed by the Authority pursuant to N.J.A.C. 19:31X-1.7(g)7; and

3. The Authority shall reserve the amount equal to the lesser of the expenses projected by the qualified venture firm or the maximum direct expenses allowed by the Authority pursuant to N.J.A.C. 19:31X-1.7(g)7.

(l) Unless the Authority otherwise gives prior written consent, within 30 days of receipt of dividends or proceeds from the sale, redemption, or other disposition of the shares of stock or other security comprising a qualified investment or any follow-on investments, the Evergreen special purpose vehicle manager shall cause such funds to be transferred to the Authority. The Evergreen special purpose vehicle manager may not reinvest such funds without the approval of the Authority. Not later than 60 days after the sale, redemption, or other disposition of the shares of stock or other security comprising a qualified investment or any follow-on investments, the qualified venture firm shall provide to the Authority a report on the amount of the stock or other security sold, redeemed, or disposed of, and the consideration received for the sale, redemption, or disposition. The report shall detail the cumulative effect of sequentially introduced positive or negative values and include the gross income and details of any offsetting fees, including, but not limited to, carried interest, that reduce the net distribution. Any dividend or proceeds received by the Authority for the sale, redemption, or other disposition of the shares of stock or other security shall be deposited into the Fund and used in accordance with section 23 at P.L. 2020, c. 156 (N.J.S.A. 34:1B-291) and this subchapter.

N.J. Admin. Code § 19:31X-1.8

Recodified from 19:31-25.8 56 N.J.R. 807(a), effective 5/6/2024