Looking at State Equity Intensity Changes Leader Board

SSTI’s VC Dashboard Value Enlarged with Addition of Per Capita Data
The runaway success of California and a few other major venture capital centers in the U.S. has made it difficult to get a firm grasp on the venture capital scene in the rest of the country. In the April 16, 2008 issue of the SSTI Weekly Digest, SSTI looked at the impact of removing California from the data to get a clearer picture of how venture capital investment is distributed throughout the other 49 states. This approach, however, does not make it any easier to evaluate a state's venture activity relative to its actual capacity for investment. Such a study would require reliable metrics on the demand for investment, which we have yet to uncover.
 
In the absence of such metrics, it may help to examine each state's amount of investment and number of deals at the broadest and most general standardization level -- venture capital investment relative to the state’s total population. While total population is no substitute for data on investment capacity, it can provide a thumbnail sketch of how states are performing in light of their size. This approach could also help deconstruct the success of state with larger populations, such as Texas, New York and California. It also may suggest a degree of equity intensity for each state relative to similar sized states and the national average.
 
Equity Intensity Measured by VC Dollars Per Capita
Though Massachusetts perennially places a distant second to California in total venture capital dollars, the state has outperformed California in per capita investment every year since 1995, the year our data set starts. At the height of the tech boom in 2000, Massachusetts was securing $1,631.75 per person in venture capital investment. The state also has maintained the highest number of deals per capita, with 67 deals per 1,000,000 residents last year. Taking population into account, however, moved California to second place in investment. California took in $377.61 per person last year, well over the national average of $100.28. Massachusetts received $540.97.
 
Revealing how skewed the data is toward the states with the greatest intensity, only seven states finished last year with per capita figures higher than the national average: Massachusetts, California, the District of Columbia, Washington, New Hampshire, Colorado and Maryland. Among these leading states, the District of Columbia (DC) and New Hampshire benefited the most from the transition from total dollars invested to per capita dollars. DC ranked 23rd last year in total investment but has risen from a post-tech boom low of $35.13 per capita in 2002 to $226.43 in five years. New Hampshire ranked 21st last year in total dollars, but took fifth place in the per capita rankings. The state has remained among the top states in per capita investment since the tech boom, although it did dip below the national average in 2006.
 
Accounting for population, Texas ranks considerably lower in per capita dollars than in total investment. Last year, the state had the third largest share among states of venture capital dollars, but ranked 18th in per capita investment. Other states with larger populations, like Florida and New York also had poorer showing on the per capita list. Taking population into consideration, however, did little to improve the standing of smaller states with little investment. North Dakota, Wyoming, Arkansas, Alaska and Nebraska occupied the bottom spots on both lists for 2007.
 
Equity Intensity Measured by Number of Deals
The data for deals per one million residents is similar to dollars per capita, with a few exceptions. Vermont consistently ranked much higher based on its annual number of deals vs. its total dollars received. For instance, in 2007, Vermont ranked 32nd in per capita investment but eighth in deals relative to population. This shift reflects the prevalence of much smaller deals in the state compared to the national average deal size. In 2007, Vermont’s average deal was $873,775; for the U.S. as a whole last year, the figure is nearly nine times higher at approximately $8 million.
 
The impact of looking at per capita deals rather than dollars can work in reverse on a state’s performance, as well. In 2007, for example, Kentucky ranked 22nd in per capita investment, but ranked 40th in deals per million residents. Average deal size in the Commonwealth was well over the national average at more than $15 million that year, although that figure was unusually high for the state.
 
SSTI will take a closer look at average deal size and other aspects of venture capital in the coming months.
 
Explore the Dashboard on Your Own
State and national per capita figures are now available on the profile pages of the SSTI Venture Capital Dashboard for all 50 states (plus DC and Puerto Rico). These provide data from 1995 to 2007 on total venture capital investment and deals, as well as national share and now per capita figures for each. Investment information has been derived with permission from the PricewaterhouseCoopers/National Venture Capital Association MoneyTreeTM Report with data from Thomson Financial. The population data has been drawn from the U.S. Census Bureau's Annual Population Estimates.