State makes 1st guarantee of 'angel' financing
Wednesday, July 26, 2006

By Beth Fitzgerald
Star-Ledger Staff

New Jersey yesterday announced its first-ever government guarantee of an "angel" investment in a high-tech company, part of a program aimed at attracting high-tech entrepreneurs to the state and encouraging them to expand here.

The state Economic Development Authority will guarantee the repayment of $94,000 of a $285,000 investment a group of six so-called angel investors is making in Knowtions, an early-stage software venture in Paramus.

The investors all belong to Jumpstart, an investing network that is affiliated with the New Jersey Technology council and has partnered with the EDA on the program. Jumpstart members have previously invested $4.6 million in nine New Jersey businesses.

Angel investors are wealthy individuals who make very early-stage investments in new companies in exchange for an equity stake, with the goal of cashing out in a few years if the company is successful. These are usually risky investments, and the guarantee program allows investors to recoup some of their money if the venture fails.

The program is part of the state Economic Development Authority's new Techniuum suite of financial incentives, designed to lure and keep high-tech companies in New Jersey. EDA spokesman Glenn Phillips said the agency expects to guarantee a total of $1 million in angel investment this year, and should make its next announcement with Jumpstart in a few weeks.

Caren Franzini, chief executive of the EDA, said the guarantee program will cover up to one-third of the investments angels make in a qualified early-stage business.

Knowtions makes Coachware, a software product that teaches employees how to do their jobs while they are working. Chief Executive Karl Rauch said the company has a dozen employees and sells its software to major corporations. So far, Knowtions has been funded by its founders, and the angel financing is the first professional money company has raised.

Rauch said the angel guarantee wasn't the deciding factor that led the angels to invest in his company, "but those who participated clearly may have invested more money as a result of this program."

He said the money will enable him to hire four more programmers to create a new version of its software, as well as a sales executive to rev up the marketing effort.