Everyone knows that the viability of a startup depends on how well it can support itself during its early days. Startup founders without the necessary funds fare much worse than do those who have their own savings or backers among their family and friends. Yet many founders can’t find the initial money to give their startups a chance.
In October, NJIT announced that it was establishing an early-stage venture fund, the NJIT Venture Fund, for NJIT graduates or seniors, faculty, alumni or anyone who has licensed NJIT intellectual property, to help them make progress with their fledgling companies, so they can get to the point where they can seek further funding from conventional angels or VCs.
Eligible for $75,000
Startups with scalable businesses will be eligible for $75,000 in seed money from the Fund, which is part of a 10-year, $6.75 million commitment from the university’s endowment. Founders will sign a Simple Agreement for Future Equity (SAFE) and receive the investment; then, at a conversion event (such as a priced round) later on, the NJIT Venture Fund will receive its shares at a discount. One of the advisers is Atam Dhawan, senior vice provost for research at NJIT.
NJTechWeekly.com spoke with Will Lutz, codirector of NJIT’s VentureLink and general manager for entrepreneurship, commercialization, and enterprise development at the New Jersey Innovation Institute (NJII); and Chelsea Samuelson, director of growth and entrepreneurship at NJII and manager of the NJIT Venture Fund. The two will be instrumental in making the decisions on which startups to fund, with the help of a committee.
Initially, the Fund will take on six startups, Samuelson told us. Assuming that any of the companies do well, the Fund will use the income it makes to finance other startups.
The Fund will not be looking at NJIT students in the middle of their academic careers, Lutz said. “We want them to be full time, and for this to be the bridge between side hustle and real thing.”
The idea for a fund has been around in many iterations, for several years, said Lutz. Judith Sheft, before she left NJII for the CSIT, was working on a version. “But it was only recently that we figured it out and finally got all the pieces together.”
Spearheaded by Joel Bloom
Lutz attributed that to Joel Bloom, president of NJIT, who reached out to VentureLink incubator after taking note of the progress entrepreneurs had made at VentureLink during the prior two years. He asked what NJIT should be doing next to support the startups.
To reply, the team spent some time mapping out entrepreneurship, from the idea or research — seeing whether it’s problem driven, solution driven or market driven — all the way to stability or fundraising. They found a gap where it came to funding. “We realized this is a hole we should be filling, and this is something that would be appropriate for a university to do.” The VentureLink team wrote the formal proposal to establish the Fund last April.
In any university, there are a lot of stakeholders who must sign off when something gets approved. In this case, the Board of Trustees was involved in deciding where the resources should go, President Bloom’s office steered the ship, and the VentureLink incubator staff was involved in the entrepreneurship aspects of the proposal. “But it all came together quickly. No one said, ‘We shouldn’t be doing that.’ We didn’t have to convince anyone,” Lutz stated.
The pathways into entrepreneurship need to be available for everyone, not just those with resources.
Will Lutz, VentureLink
Lutz noted that NJIT takes a lot of pride in being in the top rankings for economic mobility. “We decided that we are going to be the school for that,” he said. “If you start from a bad socioeconomic place,” it’s hard to leave your job or take a year off after earning your advanced degree to work on a startup, especially when you have no money coming in. The stakeholders decided that NJIT was “going to be the school that has a diverse background, diverse socioeconomic statuses. The pathways into entrepreneurship need to be available for everyone, not just those with resources.”
Bloom’s office found the money for the Venture Fund. “Chelsea and I are really good at supporting startups. We’re really good at teaching people how to start businesses and getting them to pitch and to talk to investors and all that sort of fun stuff, but we are not experts in navigating university budgets,” Lutz noted.
According to Lutz, Bloom had told him, “We’re going to figure out how to do this and do this in the right way, so it comes out of the right budget line item.” Bloom also said that his office would brief the Board of Trustees, and bring them on board as early as possible, Lutz stated. The point is that the money being used is from NJIT’s own budget, and not from New Jersey State tax dollars or tuition money.
Why a SAFE?
The idea of using a SAFE note “takes the pressure off the entrepreneur, so they are not required to have the equity in their company diluted at this point in their career,” Lutz said. “It also skips the valuation discussion. That’s the beauty of a convertible note or SAFE. We’re not arguing with the founder that their company is worth $3 million, $4 million or $5 million, when there’s not enough data to know and the company hasn’t made any sales yet.”
Each company will be evaluated on its team and total addressable market, Samuelson said. Samuelson and Lutz will conduct the due diligence, but an investment committee will be making the actual determination. The venture committee will consist of VCs from “outside of the building. I don’t want academics or professors deciding,” Lutz said. The names of the investment committee members are being kept under wraps because the duo do not want startups appealing directly to the VCs on an individual basis.
NJTechWeekly.com spoke to Samuelson and Lutz in October. The fund held its first investment committee meeting in early December, as Samuelson had noted, and she hoped to be deploying capital by the first of the year. “I will say this: We have more applicants than we have checks to write already. And I think I had four more people knocking on my door this week that haven’t even submitted their materials, but are going to. The good news is that this money is going to be available over time, and these companies are definitely at different stages of their maturity.”
“Many companies will apply that are too early, but we’ll work with them to help identify what components they need to fix, what programs they could get involved in to help shore up some of these pieces of their business, so that they can come to us in a year or two years with something slightly more solid.” Samuelson said.
One interesting thing that happened after NJIT held its launch event for the Fund was that “alumni came out of the woodwork, asking to coinvest. And we’re still figuring out what does that mean, and how do we engage them and pull them in and amplify resources,” Lutz told us.
Samuelson noted that learning about the Venture Fund has also spurred both alumni and faculty to ask for more programmatic support. NJIT’s entrepreneurship program wants to become more robust, so it can include all of those in the NJIT community, as well as those who aren’t current NJIT students, and help them in their entrepreneurial journeys.