CEO Trien Rosenberg
president Venture Association of New Jersey
Venture Capital - State of the State
“In short, we are very much on the upswing with more funds going toward real growth than ever before,” says Jay Trien president of the Venture Association of New Jersey. His perspective is grounded in long experience. As CEO of his own Morristown-based venture firm, Trien Rosenberg, Inc. Trien has weathered the dot-com gold rush, the VC nuclear winter of its ensuing crash, and the 2000 surge. Now, his scrutiny sees a steadier course ahead.
To a certain extent, New Jersey mirrors the national trend which, in 2003, loaned out a mere $18.2 billion - down from $30 billion in the 1990’s boom. But the Garden State’s return has substantially exceeded the national comeback averages.
* VC Appleseed. Thompson Financial in its continuous survey of venture capital deals has shown a steady two-year climb in overall investment, with the Garden State pacing ahead of the national norm. Trien admits the numbers look good, but they are not necessarily indicating the real trends in the venture market. “You have to be careful about averages that can be skewed by a few firms plunking down 100 million each for five major corporate expansions,” he says. When Trien speaks of money going to real growth, he is referring to the strong trend of venture investors to take positions at increasingly earlier stages of financing. “The old maxim used to state that the first round of financing was for family, friends, and fools,” he says. “This is no longer the case. Venture capitalists are becoming the real Johnny Appleseeds of new businesses.”
Certainly one reason for this earlier stage entry comes from there simply being more money out there to place. Publicly traded stocks have given individual investors a wild ride and funding sources are seeking other, more solid avenues. And while the ground floor of a startup may be the riskiest place to get aboard, it is also the most exciting and often rewarding.
* Entrepreneurial Sponges. Yet another cause for increased early-phase VC financing Trien credits to a greatly increased due diligence on both the entrepreneurs’ and investors’ sides. More information about the business launching process has helped new companies make the funding approach in a more professional way, with more homework completed. This gives a new legitimacy to first round financiers.
The new CEO’s who are really bringing home the money are what Trien calls entrepreneurial sponges. “These people soak up everything about the business process and they are doing it on the fly,” he says. “They will be introduced to something like income recognition and within a week they will have absorbed more about it than the average CPA.”
* Hot Deals. Over last two years, the general hot investment categories have not changed markedly, but within them, new niche offerings are becoming attractive. “Within the IT category,” says Trien, “what’s really getting a second look is the entrepreneur who is making the business process better.” This ranges from the simple concept of putting local Yellow Pages online with keyword searches, to a complexly engineered software system that speeds up company logistics.
In New Jersey, the small pharmaceutical startups which feed the big pharma are still gaining strong venture interest. Biotech, particularly with the state’s support also garners investors readily. Telecom, while shaky in some other regions, retains substantial interest in the Garden State.
Green building and green energy projects of all sizes are exploding in numbers, and finding funding to match. “It’s become a political and social buzzword,” says Trien, “and everyone wants to grab a piece of it.” Europe which has been seen as the traditional green leader is now trying to catch up to America’s own green investment energy. In conjunction, foreign investment is playing a greater role in all levels of startup and expansion funding. Product similarity, rather than location is forging links within the global business community.
* Tax Threats. In response to the current administration’s tax-breaks-for-the-rich strategy, the New Jersey IRS has countered with higher tax rates for the rich. While seemingly a fair idea, Trien points to a very unfair definition of “the rich.” The salaried worker and the solely owned business person and small entrepreneur all get lumped into the same rate.
This may be bearable for the salaried worker pulling down $400,000 annually. But the owner of a small or solely owned company grossing that same amount is typically drawing a much smaller salary. Thus the entrepreneur’s $45,000 actual income, which he gives himself as salary from his firm’s gross $400,000, is also taxed at the highest rate.
This said, the Garden State remains notably business friendly. Her 708,000 companies hand over $100 billion in manufactured goods annually, and wholesale goods, more than double that. Our state marks an impressive 26 percent of businesses as female owned, and claims one of the highest success rates for startups nationwide, making it an ideal launching pad for the entrepreneur. Governmental initiatives, such as New Jersey’s nationally-highest solar and clean energy rebates, also make the cost of going green very affordable. Thus while commercial rents are higher (almost 1.5 percent above the U.S. average,) the cost of plant operation is rapidly becoming one of the lowest per square foot.
So, while small and populated with more than one person per square mile, Trien sees the Garden State as taking full advantage of its centralized location. “We’ve got the right kind of employable talent to make Einstein Alley and the high techs work,” he says. “And the venture money will continue to be there for the right kind of companies.”
Jay Trien has worked as a business journalist, and helped launch countless companies throughout his career. Trien earned a bachelor's in economics from Wharton Business School, and then took his law degree from Rutgers University. Shortly after furthering his legal studies with a taxation specialty at New York University, he teamed up with Bill Rosenberg and opened Trien Rosenberg in l970, www.trienrosenberg.com. Today the firm has offices in Manhattan and Morristown, and provides accounting, consulting, and legal services for company clients. Trien is also president of Venture Association of New Jersey, www.vanj.org. Article Summary: How well are New Jersey venture capitalists keeping up with the rapid spread of the state’s businesses? What industries are being funded, at what stages? Jay Trien, president of the Venture Association of New Jersey reports.