Venture Capital Dollars Leaving U.S. As Industry Goes Global
New evidence suggests that venture capitalists increasingly view
international investment as the future of the industry. The 2009
Global Venture Capital Survey, conducted by the National Venture
Capital Association (NVCA) and Deloitte, finds that 52 percent of
venture capitalists around the world are currently investing
outside their home country. Most investors also believe that their
involvement with international partners will increase in the near
future. Fifty-four percent of respondents predict that their number
of limited partners outside their home country will increase over
the next three years. Overseas investment means new opportunities
for venture firms, but for U.S. firms, particularly those in areas
without a strong local venture industry, this trend could mean that
attracting the attention of investors will soon become even
more difficult that it is now.
While the U.S. is still home to more venture capital firms than any other country, most of these firms are located in California and a few other coastal states. Over the past few years, industry investment has become more, not less, concentrated in California (see the July 2, 2008 issue). This trend, along with a growing preference for late-stage firms over seed- and early-stage companies has made it increasingly difficult for small firms in other states to find sources of capital. With firms in California and Massachusetts now increasing their overseas activity, smaller non-coastal U.S. firms must now compete with firms in China and India in addition to those in Silicon Valley and the Route 128 region.
The survey indicates that the international focus of the industry will continue to grow. Only 17 percent of respondents said that investment levels are likely to increase in North America over the next three years, while 50 percent said they are likely to increase investments in Asia (excluding India). Forty-three percent said their investment in India will grow over that period, while 36 percent said the same for South America, 25 percent for Europe and the UK and 19 percent for Israel.
Fifty-one percent of responsdents also said that the U.S. stood to lose more than any other country from the current financial crisis. Only 18 percent said the U.S stood to gain from the crisis. Thirty-eight percent felt that China had the potential to gain the most in the current economy.
The survey provides a few clues about how countries, states and regions can go about attracting venture firms and investment. Most believe that government plays an important role in fostering innovation and, in turn, creating investment opportunities. Fifty-nine percent of respondents said that one of the things that governments could do over the next year to promote innovation is to implement favorable tax policies. Fifty percent said that governments should increase their support for entrepreneurial activity.
Respondents also were asked about what actions could be taken to support the venture capital community. Fifty-eight percent said that governments should help motivate institutional investors to invest in venture capital.
NVCA’s summary of the survey results is available at: http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=455&Itemid=93.
return to the top of the pageSenate Offers Compromise Bill to Keep SBIR Alive
On June 18, the Senate Committee on Small Business and
Entrepreneurship will markup S. 1233, a bill to reauthorize and
expand the Small Business Innovation Research (SBIR) and Small
Business Technology Transfer (STTR) programs. Both programs
are within weeks of expiring on July 30.
The bill was introduced June 10 by committee chair Sen. Mary Landrieu (D-LA) and co-sponsored by ranking minority member on the Committee, Sen. Olympia Snowe (R-ME). Sen. Jeanne Shaheen (D-NH) became a co-sponsor on June 15. Additional senators in both parties are expected to join the list of co-sponsors as the bill encompasses a compromise many analysts see as palatable to address some of the thorniest issues for SBIR’s reauthorization.
SBIR, first authorized in 1982 and credited with providing startup and early-stage financing for several thousand technology and research-related firms across the country, has enjoyed broad, bipartisan support for each of its previous reauthorizations. The current effort has proven more problematic despite several positive evaluations by the Government Accountability Office and most recently the National Academies of Science
The House and Senate were unable to craft a compromise bill before adjourning last year. Instead, Congress extended SBIR and STTR in their current forms until July 30, postponing discussion for a new Congress and new Administration.
Activity toward reauthorization has increased over the past few weeks as hearings were held in both chambers of Congress. In the House Committee on Small Business, the hearings have been virtually identical to those held last year, offering no new ideas or proposals on the divisive issue of the eligibility of venture-capital owned firms, and suggesting the committee leadership had given little consideration of a compromise position during the extension.
The Senate small business committee, on the other hand, is beginning the discussion from its compromise position on the VC eligibility, first offered last fall and now more fully fleshed out in S. 1233.
Currently, SBIR is a single program with 11 federal agencies more or less following the same rules spelled out in the authorizing legislation and the policy directive set down by the Small Business Administration. S. 1233 would alter the playing field, allowing the National Institutes of Health to make more awards to VC-backed firms than the other agencies. NIH, the venture capital community, and trade groups representing biotech and life science firms have been the most vocal advocates for more lax eligibility rules.
To date, the House version of SBIR reauthorization would be more generous – allowing VC-owned businesses full access to SBIR funding across all participating agencies. Opponents to that proposal argue the move would dilute the definition of a small business to the point of being meaningless (any large corporation could establish a SBIR shill, they argue) while also potentially putting small businesses without the financial and technical resources of VC-owned firms at a competitive disadvantage for winning awards. States without significant venture capital activity are among those seeing changes to the eligibility definition as potentially harmful to their efforts to stimulate tech-based economic development.
The compromise offered in S. 1233 would accept VC-backed firms into SBIR and STTR, but only for 8 percent of the total awards made by 10 of the federal agencies. For the National Institutes of Health, the percentage of funding going to VC-owned firms could represent 18 percent of total SBIR award funding. The proposal is consistent with findings from the recent study by the National Academies of Science and, paired with the length of the reauthorization proposed in S. 1233, provides ample time to assess the measure’s impact on the small business community, SBIR, and the national innovation system.
The SBIR Gateway Insider, prepared by Rick Shindell at Zyn Systems, summarizes the other elements of S. 1233 as follows:
S. 1233 as introduced is available through http://thomas.loc.gov.
return to the top of the pageRecent Research
Clean Energy Job Growth
Outpacing Overall Employment
A new Pew Charitable Trusts report finds far-reaching national
benefits to the growth of the clean energy sector. Between 1998 and
2007, clean energy jobs grew by 9.1 percent, while total jobs grew
by only 3.7 percent according to data collected by Pew. While the
industry is still in infancy, its growth rate over the past decade has
outpaced other emerging technology sectors that have been the focus
of TBED efforts, including biotechnology.
The Pew report addresses the challenge of defining what the clean energy economy is and what types of jobs can be categorized as green jobs. They define the clean energy economy as being comprised of five categories:
Pew uses this framework to evaluate the growth of the clean energy economy nationally and by state. In 2007, there were 68,203 clean energy businesses and 770,386 clean energy jobs in the U.S., according to the Pew data. California had the highest number of jobs with 125,390 and had the highest clean energy employment as a share of overall employment. California also leads the nation in clean energy venture capital investment and clean technology patents.
Job growth between 1998 and 2007, however, was dominated by smaller states. Clean energy jobs in Idaho grew by 126.1 percent during that period. Other leading states for clean energy job growth include Nebraska, South Dakota, Kansas, New Mexico, Hawaii and South Carolina.
The report identifies Oregon, Colorado and Tennessee as states with a large number of clean energy jobs and a high average annual rate of growth. Oregon has had success in creating energy efficiency jobs, driving its growth over the past decade. Colorado is singled out for its achievements in building clean energy jobs in wind- and solar-powered energy generation. Three-quarters of Tennessee’s clean energy economy jobs are in conservation and pollution mitigation, including recycling, waste treatment and water management.
The authors conclude that there is a need for a comprehensive, nationwide effort to support the clean energy economy in order to maximize its benefits. They cite the American Clean Energy and Security Act, currently under consideration by the U.S. House of Representatives, as a first step in creating such a plan.
Read “The Clean Energy Economy: Repowering Jobs, Businesses and Investments across America” at: http://www.pewcenteronthestates.org/uploadedFiles/Clean_Economy_Report_Web.pdf.
return to the top of the pageVenture Funds Competition Launched in Massachusetts
Gov. Deval Patrick announced last week a venture funds
competition providing seed money and mentoring to support new
business development, adding to a growing number of states seeking
to boost entrepreneurial efforts during the economic downturn (see
the March 5,
2009 issue of the Digest).
Supported through a $100,000 planning grant from the Massachusetts Technology Collaborative’s John Adams Innovation Institute, the MassChallenge Venture Funds Competition will solicit startup plans from academics and professionals around the world and select winners to receive funding for immediate launch, according to a press release. Selected companies must be headquartered in the state, create at least five jobs, and secure matching investment funds.
The founders of MassChallenge, a nonprofit entity, aim to raise $25 million to fund 25-30 startups per year in the areas of healthcare, life sciences, information technology, software, gaming, clean technology, energy, and social development. A Boston-area entrepreneur, Microsoft, and the Ewing Marion Kauffman Foundation also have contributed funding to launch the competition. In addition to a $50,000 cash prize, winners receive coaching and feedback from successful entrepreneurs and public relations and networking support.
More information about MassChallenge is available at: http://masschallenge.org/.
return to the top of the pageAlabama Governor Signs Legislation Aimed at Recruiting
Knowledge-based Jobs
Gov. Bob Riley signed a bill last month extending tax credits
and incentives to knowledge-based industries and green employers to
encourage growth and expansion in these fields throughout the
state.
Touted by the governor’s office as a recruitment tool to influence the location decision for thousands of new jobs, the bill extends capital credits and tax abatements currently offered to new and expanding manufacturers to corporate headquarters, R&D facilities, and producers of electricity or natural gas from biomass or renewable energy resources, cellulosic biofuel producers, and other green employers. The bill also extends Alabama’s 20-year credit period existing under the corporate income tax Capital Credit program to 30 years and updates the base wage requirement to $15 per hour.
Outlined during his state of the state address earlier this year, the measure is a critical component of the governor’s Alabama Economic Recovery Plan to increase the state’s competitiveness and emerge as a leader in the green economy (see the Feb. 4, 2009 issue of the Digest).
The full text of HB 568 is available at: http://www.legislature.state.al.us/.
Gov. Riley also signed the $6.2 billion education budget (SB 570) last month, providing $29 million for the Alabama Math, Science and Technology Initiative (AMSTI). Last session, lawmakers increased funding for the initiative by $5 million for a total $40.8 million. Nationally recognized for raising achievement scores and improving student interest in math and science, AMSTI was created by the legislature in 2002 and received a significant boost in funding for FY08 (see the June 13, 2007 issue of the Digest). The program provides professional development, equipment and materials, and on-site support to improve math and science teaching in the K-12 system.
return to the top of the pageKentucky Gov Requests Changes to Economic Incentives
in Special Session
On Monday, legislation was introduced in a special session of
the Kentucky Legislature to amend several of Kentucky’s
economic development incentive programs. Additionally, HB 3 contains
language to secure funding and land for a proposed lithium-ion
battery manufacturing complex (see the April 22, 2009 issue of the
Digest) in Hardin County.
Proposed changes to the economic development incentive programs include:
While many of the proposed changes were approved by both the Kentucky House and Senate during the recently completed session of the legislature, final passage of the measures did not take place, thus their consideration during the special session.
Additional information on HB 3 in the 2009 special legislative session is available at: http://www.lrc.ky.gov/record/09SS/HB3.htm.
return to the top of the pageRecent Research
GAO Finds Challenges for DOE
Tech Transfer Efforts
Competing priorities, lack of funding, and inflexible negotiation
strategies are among the challenges the Government Accountability
Office found for the Department of Energy’s efforts to
transfer technology out of the DOE labs.
The Energy Policy Act of 2005 requires DOE to establish goals for technology transfer and provide Congress its implementation plan no later than February 2006. After consulting with officials at 17 national laboratories, however, GAO concluded, “DOE cannot determine its laboratories’ effectiveness in transferring technologies outside DOE because it has not yet established department-wide goals for technology transfer and lacks reliable performance data.”
DOE uses four types of technology transfer: cooperative research and development agreements (CRADAs); non federal work-for-others agreements; licensing agreements; and user-facility agreements. What is considered technology transfer for/with private companies, university, and state or local government includes the following:
However, GAO found the DOE labs several problems faced in the transfer of their technologies. These problems include: competing staff priorities or gaps in expertise needed to consistently identify promising technologies or potential markets; lack of funding to sufficiently develop or test some promising technologies to attract potential partners; and lack of flexibility to negotiate certain terms of technology transfer agreements.
TECHNOLOGY TRANSFER: Clearer Priorities and Greater Use of Innovative Approaches could increase the Effectiveness of Technology Transfer at Department of Energy Laboratories (GAO-09-548) is available at: http://www.gao.gov/new.items/d09548.pdf.
return to the top of the pageUseful Stats
Per Capita GDP by State, 2004-2008
With the release of advance 2008 and revised GDP statistics by
the Bureau of Economic Analysis (BEA), SSTI has prepared a table
showing real GDP per capita (in chained 2000 dollars) for every
state and the District of Columbia for the five-year period from
2004 to 2008. The table also includes:
In 2008, the real GDP per capita for the U.S. as a whole was $37,899, a decrease from the previous year’s figure of $37,967. The previous annual decrease was in 2001. As often is the case, the District of Columbia had the highest GDP per capita, more than three times the national average. Delaware was the state with the highest GDP per capita at $56,401 – 49 percent higher than the U.S. average. Rounding out the top five states were Connecticut, New York, Massachusetts, and New Jersey. Overall, only 18 states in addition to Washington D.C. had a real GDP per capita higher than the U.S. average in 2008.
Over the five years, North Dakota had the largest real GDP per capita growth, rising by 20.6 percent to $37,832 in 2008. This was followed by New York, rising by 15.1 percent to $49,499. Oregon, South Dakota, and Montana were the other states with the largest percent increases from 2004 to 2008. Compared to last year’s analysis where 13 states had double-digit GDP per capita growth over the five years (see the June 11, 2008 issue of the Digest), from 2004 to 2008 there were only three states with increases over 10 percent.
Seven states had a decrease in GDP per capita from 2004 to 2008, with Michigan, Georgia and Indiana all contracting by more than 2.4 percent. The five-year change for the U.S. as a whole was a 4.9 percent increase, with 25 of the states exceeding that increase.
SSTI’s table is available at: http://www.ssti.org/Digest/Tables/061709t.htm
The BEA update, which includes links to all data and explains how the GDP by state is calculated, is available at: http://www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm
return to the top of the pageSSTI Job Corner
The complete description of this opportunity and others are
available at http://www.ssti.org/posting.htm.
The University of Missouri System is seeking qualified applicants for the position of assistant vice president for research and economic development. The assistant vice president for research and economic development is responsible for promoting the commercialization of intellectual property and products of faculty discovery, innovation and development. A bachelor’s degree in business administration, marketing or a closely related discipline is required. An advanced science degree closely related to research is preferred.
return to the top of the pageDigest Begins Biweekly Schedule for the Summer
For the duration of the summer, SSTI will be publishing the Digest on a biweekly schedule. Our next issue will be released on July 1. Subsequent issues will be dated July 15, July 29, Aug. 12 and Aug 26. We anticipate resuming weekly publication after Labor Day with the Sept. 9 issue.
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