The State as Venture Enabler With New Jersey EDA's Chief Economic Transformation Officer Kathleen Coviello

Fred Schonenberg
Hello everyone and welcome to the VentureFuel Visionaries podcast. I'm your host, Fred Schonenberg. I am so excited today to be joined by Kathleen Coviello. She is the Chief Economic Transformation Officer at the New Jersey Economic Development Authority. 

Kathleen has been at the forefront of building New Jersey's innovation economy, leading initiatives that support entrepreneurs, accelerate venture growth and position the state as a hub for emerging technologies. Most recently, she has been helping drive New Jersey's AI strategy, creating programs and partnerships designed to support AI founders, attract investment and build the infrastructure needed for long-term innovation and of course, economic growth. 

In this conversation, we're gonna dive into what it takes to build a thriving AI ecosystem, the role the government can play in supporting entrepreneurs and why New Jersey is making a major bet on the future of artificial intelligence. Kathleen, welcome to the show.

Kathleen Coviello
Thanks, and thanks for having me, Fred. I really appreciate the opportunity to spotlight what we're up to in New Jersey.

Fred Schonenberg
Yeah, it's tremendous. My sister moved to New Jersey probably five, six years ago at this point, and she had sent me an article when she first moved there and I was not aware of everything you all were doing and have done since then, just been so impressed. So I'm really excited to dive into this, but maybe before we get there, can you give us a little bit of background on yourself and what led you into this role?

Kathleen Coviello
Sure, happy to. And you actually hit the nail on the head of the crux of the challenge we have in New Jersey, which is really getting the word out on what we're doing, right? Because we're between Philadelphia and New York, we do have our own identity. And so again, thank you, because this is really important for folks to know what we're doing in the state. But I wound up in this role after a career in banking. 

So I was in the venture banking industry, actually started in commercial banking, did my first startup in commercial banking and then decided I wanted to go into venture banking. I worked through a traditional middle market bank that looks for collateral and cash flow and a history of growth in a company. And I had an entrepreneurial team come in to the bank and they wanted to talk to somebody about getting some financial support. I was the new kid on the team and everyone's like, we don't do startups, Kathleen will take the meeting. And lo and behold, you never know where things are gonna land you. 

I met with these entrepreneurs that were seasoned executives at a large company. They had emptied their 401ks, they had sold their Mercedes and put everything into their startup. And I thought, these are the kind of people that I wanna work with, that have such passion and such belief and such drive that they convinced me. And I actually went to the bank's credit committee and it was one of my first times at the credit committee. I was young and out of school and everyone's like, you're crazy. It was an apparel manufacturer and they're like, we don't do apparel start, we don't do apparel companies and we don't do startups. And I was like, but the team, like this team is amazing. And lo and behold, I got the deal approved.

The company now is Lilly Pulitzer, if you've heard of them. So they're a public company now, really well known for resort wear. But that was kind of my first experience of really working with entrepreneurs that were so passionate about an opportunity to grow a company. Shortly thereafter, I did another startup at the bank and the bank's like, this isn't really what we do. It's not our niche. And I thought, I gotta find another home if I wanna stay in this business line. And then wound up finding venture banking, working for several venture banks. 

Similarly, the tech bubble and tech highs go up and down. And I was mostly doing tech at the time. And banks have been in and out of that business. I ultimately landed at Silicon Valley Bank, which was one of the only banks in that for the long term. Obviously we know they had their own financial challenges as well, but were really passionate about finding a way to work with entrepreneurs.

At the same time, I too had moved to New Jersey. I had a young family. I was traveling all of the time to Boston and California. That's kind of where the venture banks were headquartered. And I thought there's gotta be a way that I can do this close to home. I wound up sitting on a board with the head of the Economic Development Authority. She said, we know we're missing the boat on innovation. Would you come do something for us? 

And I was like, well, there's not gonna be collateral and you really don't wanna take personal guarantees. I said, because you want entrepreneurs that have put everything in the business. And you wanna get a piece of the action. You wanna share in the upside. You wanna have your goals aligned with the entrepreneur's success. And that's really, I was pitching her, that's what economic development should be. So after about two years back and forth and me being very tired on an airplane one day of having discussions about this opportunity, I decided to give it a try. And I've been with the organization going on 21 years now.

Fred Schonenberg
No kidding. Oh my gosh, what a cool story. And I'd love it, it's very interesting. I won't bore you too much with my background and experience with economic development. But one of the things is it feels very innovative-tourism. Most of the groups that I've talked to where it's a good press release to work with entrepreneurs and startups. It sounds good, but the alignment and the way it's structured doesn't seem real. It doesn't seem like they're setting up the entrepreneurs for success or the program itself. So I love hearing your journey and how you were thinking about this right away.

Kathleen Coviello
Yeah, I mean, the hardest thing, right, is that companies that are gonna fail, fail first, right? So when I came on board and made this pitch that we should support high growth entrepreneurs, of course there were losses. I'm like, just give me time. Like, please be patient, believe in the vision. And after a few years when we started making money and we had these things called warrants that nobody in economic development had ever heard of, we were having exits and companies were being acquired.

People were like, wow, this really works. I'm like, yep, there has to be this alignment around success and what that success looks like. So it's a niche part of economic development, but a growing, growing part of it if economic development wants to be a part of the current economy.

Fred Schonenberg
So I wanna switch briefly over to AI and maybe we'll come back to the entrepreneurship piece because they're interwoven for sure. Clearly New Jersey's made AI a strategic priority. Can you think about when you all decided, when leadership decided like, hey, AI is actually aligned with what we're trying to do from an economic development standpoint and we need to really focus on that as a sector or industry?

Kathleen Coviello
Yeah, sure. Happy to, and you prompted my thinking on this. So at the time we were building something called strategic innovation centers in the state and I'll talk a little bit more about one focused on AI. And it was really, how do we bring together academia, corporate America and innovation entrepreneurship, right? And it was really important that we have all those pieces together.

Our first foray there was around FinTech because New Jersey in the Northern part of the state has a natural asset there. And we said, where does New Jersey have unfair advantages? How do we highlight those advantages, bring the key players together? And we kept hearing kind of this overlying bedrock of AI. So even in our FinTech innovation center, in our life science innovation center, AI kept thematically arising in everything that we were doing in innovation.

We made a trip out to the West Coast and we're talking to large and small AI companies out there. We visited NVIDIA, we were Anthropic, Governor Murphy at the time spearheaded the trip. And folks were pretty bullish about New Jersey on the West Coast. They kept saying, you've got so much talent in the state, which we knew of course, having great academic centers like Princeton and Rutgers and Stevens and NGIT, very kind of technical schools that we are really at the forefront of. We have more engineers and scientists per square mile than any other state in the country. Folks are like, there's no reason New Jersey can't be the AI hub of the East Coast.

Particularly we're known for life sciences in the state and folks like life science is gonna be where AI is gonna make the biggest difference. So we came back from that West Coast trip and the governor's like, okay, it's time, we're gonna do this. And we said, well, we need partners, right? Like for us and I think one of the smartest things that we do in economic development is lean on others and kind of bring them in. And that partnership with Princeton and Microsoft and CoreWeave and the State Economic Development Authority is really what started the catalyst for the AI hub, which was one of these. Now we have 12 innovation centers around the state. 

Fred Schonenberg
Was that the first one? Was AI the first of the innovation centers? 

Kathleen Coviello
It was not, it was not. We had this FinTech one first, we had a life science one first called the Helix, but thematically AI was running across the other centers. So we really had to make a strategic decision. Is AI an industry in and of itself or is it enabling technology? And I actually think it's a little bit of both, right? It cross-cuts in everything that we do, but you have to lean in and we can talk a little bit about how we do that at the AI hub, but we really made a conscious decision that we wanted to strategically put some bets on AI as a technology itself, as well as an enabling platform.

Fred Schonenberg
I love it. And I think it's so interesting and we run VentureFuel Comcast's innovation program, which has been focused on enterprise AI. Now we're in our seventh cohort and it's such a dynamic, fast-moving, fast-growing industry, but to your point, it's across lots of different, I mean, we've worked across probably 12 different business units across different verticals within the organization. When you work with a big org like that, right, there's so many different places it could apply, but it's really interesting. 

And this is funny, sometimes when I read some of the questions we put together, I almost wanna check the stats, but is this real that the particular AI hub, over $500 million of AI incentives are involved in this? 

Kathleen Coviello
So that is for our AI center, not specifically the innovation center, but for primarily data centers. For AI data centers, the legislature in the state of New Jersey approved $500 million of tax credits for that industry. We've made one award so far to CoreWeave for $250 million in tax credits.

So what's interesting, if you're not familiar with the story of CoreWeave, great entrepreneurial story, right? Some college buddies in a garage building a company, just like you hear about on the West Coast. And it's the second largest IPO in the state of New Jersey. So we're excited about what they're bringing to the table in the state. I know data centers have a lot of syncs with them. 

I often say I'm choosing between my children because part of my portfolio is clean energy. And we're working hard to make sure that we get data centers that are smart. Governor Sherrill just came out with some overarching guidelines on how we're gonna be smart around data centers in the state of New Jersey and create good paying jobs, not give up innovation. But yes, there's 500 million in our AI tax credit program.

I think interestingly enough, when the legislature had the foresight to stand up this program, one of the things they said is, we just don't want warehouse kind of jobs. We want jobs that are gonna match up with our skillset here in New Jersey. They put a salary requirement in this program that's 120% of the median salary. So CoreWeave put $1.7 billion of CapEx into their center in Kenilworth, New Jersey, and they committed to creating 143 jobs that are at 120% of the median salary of that location. So significant CapEx, but also very significant jobs and high paying jobs.

Fred Schonenberg
I think that's one of the things that a lot of folks don't realize or think about when you're looking at entrepreneurs and attracting them to the state or wherever the economic development impetus is, is the jobs they create tend to be great paying, great jobs that then bring people's families to those jobs and start to create an ecosystem. It's really interesting.

Kathleen Coviello
I even point often to the $1.5 billion raised from CoreWeave through their IPO. I'm like, where do you think that money has gone? It's gone to the team in New Jersey, what they've liquidated from the IPO sale, and to their families. And it's contributing to our ecosystem. So having a really successful IPO like that in the state and keeping those jobs here and making sure that a company like CoreWeave stays anchored in the state, I think is a critical economic development goal.

Fred Schonenberg
Yeah, it's really interesting. I talk to people all the time about things like, how do we become the Silicon Valley of the East Coast or the West or wherever? And I'm always like, what's interesting is when you start to attract a company like a CoreWeave, they do an IPO, liquidation goes back to some of the founders, what do they tend to do? They tend to invest in startups. That's what they know, that's where they came from. They spin up their own fund or a venture studio that then does the same thing again. And so it's a really interesting way to kind of jumpstart and build a really interesting economic development engine.

Kathleen Coviello
For sure.

Fred Schonenberg
I'd love to talk to you about one of the things when we've talked to other groups around this economic development engine, they tend to get excited about the startup piece and the venture capital piece. And they're like, great, now all we need to do is attract the startups to come to X. And X might not be the equivalent of New Jersey or the equivalent of Silicon Valley. I'm curious how you all are pitching entrepreneurs when you're trying to attract them to New Jersey. What is sort of the pitch about why come build a business in New Jersey?

Kathleen Coviello
Well, it's interesting, Fred, you've already alluded to some of it, right? So people come with their families. And so for New Jersey, and I even said this, right? Why I'm here in economic development is to raise a family. New Jersey has some of the top K-12 school systems in the country. For the most part, 20 year olds wanna be in New York, but 35 to 45 to 65 folks that are raising families wanna be in New Jersey because we have such a strong school system. 

And so if you're bringing a trailing spouse, if you're raising children, it's a beautiful place to have a family. That is always how we pitch it, right? The diversity of the landscape. The beaches are from where I'm sitting, a 45 minute drive. The mountains, my son is off skiing in the winter all the time just for a day trip. Where else can you be at the beach and be at the mountains? Within the same state, there's not a lot of locations like that. 

So that bedrock makes it much easier than if you're saying somewhere in the Midwest or Alaska. I don't wanna be disparaging to our other states, but where do you have these really, really unique attributes of landscape with mountains and beaches? And then you have incredible, incredible mindshare because of the great school systems that we have. I mentioned some of them earlier. So that I think is the fundamental bedrock that you need to start the conversation, right? We've got the opportunity for your family life here. You can take the train into New York and go see a show. You can have great restaurants here. So it's kind of that quality of life. 

Then I think you add on to the quality of life to say, and we've made this focus effort to support entrepreneurship, innovation, and high growth companies here. We have some really, really unique toolkits in New Jersey to help entrepreneurs. I have yet to find a state that has such a strong, again, kind of robust toolkit. Ability to sell your net operating losses. I hear from folks all the time, what? And like, I meet with a company and I'm like, you probably need capital. Are you losing money? They always sheepishly say, yeah, I'm losing money. 

And we said, that's great, we can help you. We can turn those losses into cash. You can sell them in New Jersey to a profitable company. Non-dilutive capital. The average company gets $1.5 million. Again, a really unique toolkit. We have one of the strongest angel investor tax credits in the country at 40%. It's a refundable tax credit. So we know lots of companies raise capital from out of state individuals. We welcome that capital into the state. I mean, the best capital is smart money, right? A lot of times that's in the form of an angel investor.

So New Jersey will give 40% back of any investment. We tell the entrepreneurs all the time, tell your investors, you're gonna de-risk their investment. They're gonna get capital back within six months. It's a well-subscribed program, but if you get locked out, you go first in line for the next year. So there's this certain reliability around our investor tax credit. And again, it's pretty robust at 40%. You know, as I mentioned, we're building these innovation centers around the state. 

We have partners that are accelerator partners that are helping us launch these initiatives. So there again, you're getting the smarts and the money from these folks. And we're bringing corporate partners to the table when we're building these innovation centers. Relative to AI, we have Microsoft at the table and we have CoreWeave who are corporate partners here. 

When I was back in venture banking, I found so many startup companies that would die on the vine waiting to make that sale to Verizon, right? They'd be like, I have a technology, I'm gonna sell it next month and I just need to get around the financing to get me through that. Well here, if you're part of one of our innovation centers, if you're part of our New Jersey AI hub, you have Microsoft and CoreWeave at your disposal. And so we're helping shorten the timeline for you to get to those commercial partners.

So I don't think it's just one thing, but it's kind of that multitude of opportunities, be it support directly from the state, support from our corporate partners or just the overall environment of living in New Jersey.

Fred Schonenberg
I love that. I think one of the things that's interesting that you mentioned is the intersection of corporate universities, government. Can you talk about why it matters to have the various legs to the stool in order to make this more than a one-off program and make it something that is sustainable and repeatable?

Kathleen Coviello
Yeah, it really is part of our philosophy on these 12 innovation centers that we've announced. And we've seen academics try and do it alone, right? They're really good at research, but not so great at commercialization. We wanna make sure that entrepreneurs are building for a market, not building for the sake of building a new innovation and new technology. So no better way to do that than to have the corporate partners that are potential acquirers of the technology, potential acquirers of the company at the table.

In government, for us, for economic development, what we really, really spend a lot of our time doing is bringing the folks together. I often say on our team, I'm like, introduce so-and-so, introduce so-and-so, and then step out of the way and let it happen, right? But we've got this really, really unique perspective that we're engaged with academia. We're engaged with the corporate folks and we're engaged with the startups. And so we need to curate this collision between all of those folks. 

And one of the monikers of our Innovation Center and the Princeton, New Jersey AI Hub is to make sure that there's a space. It doesn't happen like this over a video call. You just need that personal engagement. And at our Princeton AI Hub, we're hosting, I think this year so far, we're up to 60 events where we're bringing folks in and we're encouraging folks to meet like-minded folks in the industry. We'll be having a pitch event for the first cohort of our accelerator program that's administered this month. And we've got really interesting companies that are gonna be presenting as well as large corporations in the state.

One of the great things about New Jersey is we've got so many blue chip companies, right? And AI is woven through everything that we're doing. We're seeing it as I'm sure you're seeing the trend, Fred, that so many companies aren't gonna build the technology themselves, right? They're gonna acquire it. And so they don't wanna miss out. So we've got a great audience of folks that are thinking, how do I get smart about AI? How do I acquire the assets that are building in this industry? It's part of our job, again, to curate these collisions. 

Fred Schonenberg
So one question I had for you is AI is evolving faster than policy in so many different places, so many different areas. And there are people apprehensive about it, concerned and excited, right? There's so much here. And I'm curious about your take on AI governance in a way that doesn't slow down progress, but maybe helps folks feel more comfortable on what the future might look like, if that's an appropriate question.

Kathleen Coviello
Yeah, it's funny, because I sit on the board for us for the New Jersey AI Hub. I'm like, none of us are lawyers, we don't wanna get into the legality of it, but we are certainly putting some guardrails on what smart governance looks like and just learning from others, right? And sharing best practices around this. But as you said, it's still early days. And unfortunately, where folks wanna be malicious, they're gonna be malicious. But we're gonna help try and find ways to inform folks.

Fred Schonenberg
All right, if you have a minute, I'd love to end this with a little rapid fire, where I'll ask you a couple of quick questions, and just give me your gut instinct, and we'll kind of wrap it up on that.

Kathleen Coviello
Okay.

Fred Schonenberg
Is there an AI startup, or startup across any of the New Jersey programs that you've seen that made you kind of stop and think and go, wow, like, this is transformational, this is a really big deal?

Kathleen Coviello
Yeah, so, you know, as I mentioned, life science is a prevalent industry throughout the state of New Jersey. We have got a lot of great biotech and a lot of great pharma companies here. We also have an investment fund that we run a co-investment fund called the Evergreen Fund in New Jersey. We've got a portfolio company in there that I'm really watching and excited for called Hill Research, and look them up. They've got incredible technology for shortening clinical trials. 

So when I think about the opportunity of AI, right, and we're saying it's an exciting opportunistic time, the ability to cure diseases in a quicker way, to get products to market that are gonna be impactful in folks' lives, I can think of no better technology. So Hill Research is my bet.

Fred Schonenberg
I love it. What is your favorite part of working with entrepreneurs?

Kathleen Coviello
Oh, it's definitely the passion and their vision, right? Sometimes it's a blinded vision, but it's contagious. 

Fred Schonenberg
If New Jersey had a tagline for the AI ecosystem that's evolving, what do you think it would be? 

Kathleen Coviello
You know, I don't know if you've been to Trenton lately or even quite some time ago, but there's a bridge going into Trenton that says Trenton makes, the world takes. So I would flip that around a little bit and say we're the intelligence that moves the world forward.

Fred Schonenberg
I love it. I love it. I think that's fantastic. You said something before about curating the collision. I thought that was such a cool line for how all these things come together and all the right parties are there. Kathleen, thank you so much for everything you're doing to spark change, for sharing with us today. Where should people go to learn more about what New Jersey is doing and how can they get involved?

Kathleen Coviello
Yeah, happy to share that. They can go to our website, njeda.gov or follow me on LinkedIn. I do a lot of posting on LinkedIn with what we're up to in the state. And EDA has a LinkedIn website as well. So either any or all the above would work.

Fred Schonenberg
Wonderful. Well, thank you again for the time today and everything that you're doing. And everybody, go check out the links. It's very exciting. I think it's one of the best economic development programs in the world. Thank you, Kathleen.

Kathleen Coviello
Appreciate your time. Have a great weekend. Bye-bye.