As part of his plan to reshape the economy of New Jersey, Gov. Philip D. Murphy wants the state to play the role of venture capitalist to lure start-up companies to the state.

When he campaigned for governor, Philip D. Murphy leaned on a recurring quip in his stump speech: “New Jersey was Silicon Valley before there even was a Silicon Valley.” He was conjuring the New Jersey of a decade ago, when the state was a leader in new and thriving companies in industries like biotech.

Now, as he seeks to reshape the state’s economy, Mr. Murphy wants New Jersey to utilize one of the most quintessential, lucrative and risky practices of Silicon Valley: venture capitalism.

As part of an economic plan the governor announced on Monday, Mr. Murphy proposed to establish a fund that would allow the state to partner with private venture capitalists to invest in start-up companies that agree to set up shop in New Jersey.

Mr. Murphy’s move toward providing cash through public-private partnerships, rather than offering more traditional tax incentives to lure new business, comes as New Jersey struggles to develop homegrown companies. While New Jersey was among the top five states for venture capital investment a decade ago, it has fallen to 15th.

“We’ve had a very sort of blunt-instrument, one-size-fits-all, big-company-focused tax incentive program that was our whole strategy,” Mr. Murphy said in an interview. “And almost nothing toward the start-up community.”

The proposal is both unusual and routine: States often try to incentivize new companies to lay down roots, often with mixed results. But directly investing in start-ups carries additional risks. The companies could fail, and New Jersey would lose much-needed tax revenue. The private firms also could choose not to share their most lucrative opportunities with the state.

New Jersey has also recently seen its younger generations flee the state, limiting the talent pool that is vital to start-ups.

And this being New Jersey, putting state money into private companies has the potential to lead to political favoritism or corruption.

“This is going to have to be very transparent process,” Mr. Murphy said.

What’s the plan?

The proposal calls for raising $500 million over five years to create the New Jersey Innovation Evergreen Fund. About $250 million would be generated through an auction of tax credits to New Jersey corporations and the other half would come from matching funds from private venture capital firms.

Venture capital is among the riskiest of asset classes, and directly involving state funds could lead to losses. But Mr. Murphy said the current tax incentive plan was not working.

“I look at the results for what we’ve gotten back, and we’re spending a billion dollars per year” and still falling behind, Mr. Murphy said, referring to current tax incentives. “We’re trying to jump-start industries that have been in our sweet spots forever. Life science, advance manufacturing, biotech, to pick a few.”

Where will the money come from?

The governor, through the New Jersey Economic Development Authority, plans to auction off $60 million worth of tax credits every year for five years to major companies with tax liabilities in New Jersey.

The governor’s model predicts that the tax credits will sell for roughly 90 cents on the dollar, giving some of New Jersey’s major companies a tax break. That auction money — which the authority estimates will be about $250 million — would fund the program. This, of course, means the state would be diverting tax revenue into the new fund.

Through a dollar-for-dollar match from private-industry partners, the state hopes to build a fund of $500 million.

This type of fund is more useful to entrepreneurs than traditional tax breaks, Mr. Murphy said.

“Tax incentives for start-ups is a non sequitur because they don’t have any profits,” Mr. Murphy said. “So there’s nothing to tax.”

Can Mr. Murphy just do this?

The E.D.A. is under Mr. Murphy’s control, enabling him to create the New Jersey Innovation Evergreen Fund without the approval of another branch of government.

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