In the November 14, 2003 Issue:

Copyright State Science & Technology Institute 2003. Redistribution to all others interested in tech-based economic development is strongly encouraged — please cite the State Science & Technology Institute whenever portions are reproduced or redirected.

Subscription to the SSTI Weekly Digest is free. If you are reading a forwarded copy of this issue and would like to receive your own copy each week directly, please subscribe at http://www.ssti.org/Digest/digform.htm. Requests to unsubscribe also may be completed at http://www.ssti.org/Digest/digform.htm.


VC Holds Steady in Q3 2003
For the fifth consecutive quarter, venture capital (VC) investments in the U.S. hovered around the $4 billion range, showing a sign of stability, according to two independent reports. The reports affirm the industry's shift in focus away from information technology and toward the life sciences.

While domestic VC investing appears to be on the mend, a European Commission report shows the European Union (EU) continues to lag the U.S. in investing activity. Venture capital investment in the EU has experienced a nearly 50 percent decline between 2000 (E19.6 billion) and 2002 (E10.1 billion), the report states. For comparison, U.S. venture capital investing in 2002 was E20 billion. The EU report is available at: http://europa.eu.int/comm/internal_market/en/finances/mobil/risk-capital_en.htm

MoneyTree™ Survey
For the first time in seven years, biotech was the leading industry with $873 million, PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™ Survey data show. Investments in biotech companies increased 31 percent from Q2 2003 and 88 percent from a year ago. The life sciences sector, which includes biotech and medical devices & equipment, totaled $1.24 billion or 30 percent of all dollars invested.

Second to biotech was the software industry, which was down 11 percent from the previous quarter with 160 companies receiving $819 million. Telecommunications fell to a five-year low of $492 million, but remained in third place. The medical devices and equipment sector was fourth with $376 million, and networking was fifth, also falling to a five-year low with $331 million.

Overall investments totaled $4.2 billion in the third quarter, down 8 percent from Q2 2003, the data show. A total of 667 entrepreneurial companies received funding, a decrease of 5 percent over the previous quarter. Since Q3 2002, venture capitalists have invested in the range of $4 billion per quarter, a stable pace of investing, according to the MoneyTree™ Survey.

Detailed information for the third quarter of 2003 is available by region, industry and stage of finance at http://www.pwcmoneytree.com. Historical data dating back to 1995 also are available for the U.S. and selected regions.

Additionally, SSTI has prepared a table <http://www.ssti.org/Digest/Tables/111403t.htm> to present the MoneyTree™ Survey results for Q3 2003 by state. The table includes data for the number of deals, total amount invested, average deal size and ranking.

Growthink Research
The Growthink Private Equity Funding Reports, which profile only private, U.S.-based companies that receive equity investments of $300,000 or more, found 63 biotech and pharmaceutical companies received $949 million in venture capital deals. This enabled the healthcare sector to post another quarter-to-quarter increase in funding with 124 total ventures. Still, 34.5 percent of the total dollars invested went to companies in the connectivity sector, 2.3 percent more than healthcare. Overall, nearly $4.1 billion of venture capital was invested in 457 private companies in Q3 03.

Among major metropolitan areas, the San Francisco Bay Area continued to lead the nation with nearly $1.3 billion in investments, or 31.8 percent of the nation's total, and 125 companies securing deals. Boston was next with $486.6 million (11.9 percent) and 49 deals. After a subpar second quarter, New York City reclaimed the third position from San Diego, which dropped to fourth.

The Los Angeles, Washington D.C., Austin, Philadelphia, Denver/Boulder and Minneapolis/St. Paul metro areas rounded out the top 10, which accounted for 71.9 percent of the nation's total second quarter VC activity. Seattle and Irvine/Santa Ana fell from the top 10.

Growthink figures also differ from the Moneytree™ Survey in that Growthink does not collect information on venture capital investments in public companies, debt financing or other areas. The third quarter survey, with data arranged by geographic region, state, metro area and industrial sector, is available in individual sections or in its entirety at: http://www.growthinkresearch.com

return to the top of this page

Commerce Report Helps Define Biotech Industry
Biotechnology is projected by many to be the "next big thing" for economic growth — and money is following the hype. Congress has over the last several years accomplished the goal of doubling the budget for the National Institutes of Health, already the nation's largest funder of life science research. Several issues of the SSTI Weekly Digest over the past few years have included stories of states and communities across the country investing heavily to capture some portion of the projected growth of this nascent industry. Now, private money has embraced the pursuit as last quarter marked the first time the biotech sector captured the largest share of reported venture capital investments (see story above).

Our understanding of the biotech sector has been limited, however. For instance, the interdisciplinary nature of biotechnology does not fit neatly into the traditional fields of science and engineering used by the National Science Foundation to measure research and development (R&D) expenditures. Because of the broad application of biotech, firms commercializing the technology also can be found in more than 60 of the North American Industry Classification System codes. And, as the billions in research investment yield even more commercial applications, the diffusion of biotech into other fields likely will expand.

A new report from the Office of Technology Policy (OTP) provides one of the most comprehensive and detailed looks yet at the emerging U.S. biotech industry. Drawing on more than 3,000 companies' responses to a 22-page questionnaire, A Survey of the Use of Biotechnology in U.S. Industry characterizes the sector across a broad range of categories: financial and economic performance, R&D expenditures, employment and workforce.

For example, the survey found respondents who are engaged in biotechnology research, development, and applications reported in 2001 they had more than 1.1 million employees, total annual net sales of about $567 billion, operating income of $100.5 billion, capital expenditures of $29.5 billion, and R&D expenditures of $41.6 billion. The value added for respondents’ businesses was at least $272.8 billion, or 2.7 percent of U.S. Gross Domestic Product, in 2001.

The survey also confirms some of the high expectations for growth coupled with significant risk inherent for biotech investments. It states, "Patent data underscore the dynamic and rapidly evolving nature of biotechnology. In the last quarter of 2002, companies reported 33,131 pending applications for biotechnology products or processes, compared with 23,992 current portfolio patents." Hot leads on commercial applications based on today's research quickly can be outdated by new scientific advances and understanding.

Fifty-six percent of respondents reported zero or negative operating income in 2001, and 44 percent of the firms with fewer than 50 employees had received some VC investment.

Survey results also reveal general characteristics for biotech firms in specific areas. For example, R&D intensity (calculated as a ratio of R&D expenditures to net sales) was highest for the 41 reporting firms that engage in environmental remediation and natural resource recovery.

The report is consistent with other reports in its portrayal of the current geographic concentration of biotech activity, including the Brookings Institution's Signs of Life: The Growth of Biotechnology Centers in the U.S.. Seventy percent of respondents were headquartered in 10 states, with 26 percent located in California. Other states with large concentrations included Massachusetts, Maryland, Pennsylvania, North Carolina and New Jersey.

As with other industries, biotech firms reported workforce issues as prevalent: employment growth averaged 12.3 percent annually for 2000-02 across respondents, but "smaller companies (those with fewer than 50 employees) reported difficulty in filling positions. Nearly half of these firms reported that more than 20 percent of their biotech-related positions had been unfilled for more than three months. This was true for only 1 percent of firms with more than 50 employees."

Tech-based economic developers should note it appears foreign and domestic outsourcing, which currently is creating havoc for higher-wage U.S. information technology workers, will quickly become an issue for the biotech industry as well. "Half of all survey respondents are contemplating outsourcing some jobs domestically to U.S. firms," OTP states. More than one-fourth are "thinking of outsourcing to foreign firms or facilities."

Barriers to business competitiveness most often reported by respondents were regulatory approval process and costs (59 percent), and research costs and access to start-up capital (53 percent each).

The report's conclusion, which addresses competitive strategies and outlook, should be useful for state, regional and local tech-based economic developers designing initiatives to grow a bio-based economy. For example, the majority of respondents (53 percent) say they are developing technologies that can be licensed to others. As a result, the local economic development impacts of public investments in research-oriented firms could be minimal unless the licensing partners and commercialization capacity are also located in the region.

OTP is a division of the Department of Commerce's Technology Administration. A Survey of the Use of Biotechnology in U.S. Industry is available at: http://www.technology.gov/Reports.htm

return to the top of this page

Angels Aligning in Own Association
In 2002, angels invested $15.7 billion in entrepreneurial businesses in the U.S., according to the Center for Venture Research. Yet – until now – there was no organization to establish best practices or collect data on how to maximize the performance of groups of angel investors.

The new Angel Capital Alliance, sponsored by the Ewing Marion Kauffman Foundation, already has been endorsed by 46 angel capital organizations throughout the U.S. and Canada, with many other angel groups interested in membership. Approximately 170 angel capital groups have been identified across the continent.

Approximately one in 10 start-up or early-stage companies in the U.S. receive equity capital from angel investors. Angel investors, on an individual basis or through groups, may invest up to 90 percent of the independent equity that early-stage businesses receive. Angel organizations are important because they help individual investors combine their funds with other angels, lead to better investing practices as members learn from one another, and make investors more accessible to entrepreneurs as groups publicize their existence in their communities.

"The Angel Capital Alliance builds on a trend in equity investment, in which more and more individual angel investors are working together," said Marianne Hudson, manager of the angel investing initiative at the Kauffman Foundation. "The number of angel groups in the U.S. has tripled since 1999, but they have not had a platform in which to network and learn from each other."

The Angel Capital Alliance will enhance angel group practices, which may lead to increased and better investments in early-stage entrepreneurial companies. As a hub for angel organizations, it will:

The Alliance will be based at the Ewing Marion Kauffman Foundation headquarters in Kansas City, and it should begin operations by the end of the year. More information is available at http://www.kauffman.org.

return to the top of this page

Pew Report Spotlights University-Community Partnerships
Can universities, foundations and funding agencies, local governments and nonprofits work together to mainstream research and evaluation while improving program operations?

Yes, states a recent report issued by the Pew Partnership for Civic Change. The report, University & Community Research Partnerships: A New Approach, is based on two years of research and a roundtable discussion convened by the Pew Partnership, a civic research organization. Six key findings emerged from Pew's efforts:

The Pew Partnership suggests several ways to build more effective partnerships between universities and communities. To further such partnerships, the report recommends promoting connections between faculty and community practitioners, providing incentives or rewards for collaboration, and spotlighting successful partnerships.

University & Community Research Partnerships: A New Approach is available at: http://www.pew-partnership.org/home/home.html

return to the top of this page

Local TBED Briefs

Iowa: Davenport Sells City Land for Tech Incubator
To jumpstart the city's multi-million-dollar revitalization project, the Davenport City Council voted last week to sell city land to a developer to build a tech incubator, according to the Associated Press. The initial phase of the project, valued at $113.5 million in all, will begin with a 40,000-square-foot facility to house start-up, technology-based businesses. Construction of the business incubation center is slated to be finished by June 2004. Once complete, the center could situate up to 10 new high-tech start-up companies.

Kansas: Lawrence Chamber Creates Life Science Task Force
High-paying, high tech jobs in the life sciences should become more readily available in Lawrence, Kan., thanks to a task force recently created by the city's Chamber of Commerce. The 31-member Lawrence Life Sciences Task Force is being commissioned with the sole purpose of growing the area's life sciences industry. Scientists, business leaders and public officials in Lawrence comprise the group, which held its first meeting on Nov. 7. In addition to developing a life sciences strategic plan, the task force plans to join other groups such as Kansas University in lobbying for more research funding dedicated to the life sciences.

Louisiana: New Orleans Chamber, Tech Council Create Research Grant Program
Collaboration between two economic development agencies in Louisiana is expected to result in more small grants for university researchers, the Nov. 6 issue of the Times-Picayune stated. The New Orleans Regional Chamber of Commerce's MetroVision is joining the Louisiana Technology Council in creating a "proof-of-concept" fund, which will start with $100,000 in seed money. MetroVision, the chamber's economic development arm, is supported by state and private funding and is supplying the seed money. The tech council also has promised to dedicate to the fund part of the money it receives from fund-raising efforts.

Massachusetts: UMass Establishes Tech Marketing Fund
A fund to support technology transfer is being undertaken by the University of Massachusetts, the Worcester Telegram & Gazette reported on Nov. 5. While a $100,000 contribution has gotten the fund started, most of the fund's anticipated $1 million will come from fund-raising and internal allocations, according to a university official. The initial contribution stems from $20 million in revenue generated by the university's technology licensing efforts.

return to the top of this page

Useful Stats: 2002 S&E Doctorate Awards by State
The National Science Foundation (NSF) has released a statistical report on Science and Engineering Doctorate Awards: 2002. The data show trends in science and engineering (S&E) doctorate awards by S&E field and recipient characteristics, institutions awarding doctorates, and postgraduation plans of recipients.

The 18-page Table 6 of the report presents the distribution of doctorates awarded in 2002 by institution, by state and by major field. SSTI has prepared an abbreviated table providing a state-by-state ranking for doctorates awarded by major field. The SSTI table also includes the values and state rankings for the total S&E doctorates awarded per 100,000 residents within each state, using the 2002 population estimates from the U.S. Census Bureau.

SSTI's table is available at: http://www.ssti.org/Digest/Tables/111403t2.htm

Science and Engineering Doctorate Awards: 2002 is available at: http://www.nsf.gov/pubsys/ods/getpub.cfm?nsf04303

return to the top of this page

Director Sought for Power Partnership of Ohio
Case Western Reserve University is seeking an executive director of The Power Partnership for Ohio, one of the new Wright Centers of Innovation funded in part by a $18 million grant from the State of Ohio. Headquartered at Case Western Reserve University, with satellites at Cleveland State University, Ohio State University, Stark State College of Technology and the University of Toledo, The Power Partnership was created to establish Ohio as a leader in the fuel cell industry, stimulating economic development and creating Ohio jobs in this emerging industry. The executive director will oversee all activities of the partnership, including research, development and commercialization, and will oversee the planning and implementation of programs. The successful candidate will have a degree in science or engineering and 15-plus years of progressive responsibility in management, preferably in a high-growth business or start-up environment, advanced power research and nonprofit collaborations. More information is available at: http://www.ssti.org/posting.htm

return to the top of this page

People

Sam Bodman, presently Deputy Secretary of the U.S. Department of Commerce, has been nominated to serve as Deputy Secretary of the Department of Treasury.

John Calvin, Secretary of the South Dakota Department of Tourism and State Development, has announced his resignation effective Dec. 15.

TechPoint, Indiana's statewide technology council, has named Cameron Carter to serve as president and chief executive officer.

U.S. Navy Rear Admiral Thomas Q. Donaldson, V has been appointed Director of the John C. Stennis Space Center (SSC), effective Jan. 5, 2004.

Carol Ann Dykes is the new president of the National Association of Management and Technical Assistance Centers.

The new position of vice president of research and health services at the University of South Carolina will be filled by Harris Pastides.

return to the top of this page

State Science & Technology Institute
5015 Pine Creek Drive
Westerville, OH  43081
Phone: (614) 901-1690
Fax: (614) 901-1696
Email: ssti@ssti.org

© 2003 State Science and Technology Institute. All rights reserved.