Venture-backed Companies Make Formidable Impact on Economy

A little money has gone a long way, when you consider the initial size of venture capital investments each year, the $2.1 trillion in revenues captured in 2005, and the nearly 23,000 venture-backed companies that have received investments. In fact, 16.6 percent of the 2005 U.S. gross domestic product (GDP) was directly attributable to the $2.1 trillion in revenues received by venture-backed U.S. companies, while the $23 billion of VC invested in 2005 only equaled 0.2 percent of GDP.

 

Those figures are reported in Venture Impact: The Economic Importance of Venture Capital Backed Companies to the U.S., prepared by Global Insight and the National Venture Capital Association. In fact, the third edition of the Venture Impact report concludes that venture-backed companies outperform other firms in job creation, revenue growth and overall contribution to state economies.

 

The report states employment at companies that received investment from venture capital firms grew three times more quickly than their non-venture-backed counterparts between 2003 and 2005. With 10 million employees, venture-backed companies account for 9 percent of U.S. private sector employment.

 

With much of the health of the nation's economy hinging on the relatively small venture industry, the groups recommend that federal and state governments pursue policies that support the venture industry, such as increasing funding for basic R&D.

 

Companies backed by venture capital investments are becoming more important to economic growth. Between 2003 and 2005, employment at venture-backed companies grew at an annual rate of 4.1 percent, compared to just 1.3 percent for the U.S. economy as a whole. Venture investment is particularly important in the software, and computers and peripherals industries, where nearly 90 percent of all jobs are within venture-backed companies. California, Texas, Pennsylvania, Massachusetts and Georgia lead the nation in venture-backed employment. Pennsylvania, in particular, has experienced rapid growth during the last few years. Between 2003 and 2005, employment in venture-backed Pennsylvania firms grew almost 15 percent a year.

 

Venture Impact: The Economic Importance of Venture Capital Backed Companies to the U.S. Economy is available at: http://www.nvca.org/pdf/NVCA_VentureCapital07.pdf



Links to this report and more than 4,500 additional TBED-related research reports, strategic plans and other papers also can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.

 

More Public Sector Programs Eager to Lend VC Hand

Access to equity capital is one of the fundamental elements for successful TBED, but with more reports similar to the one above for the success of venture-backed companies, more state programs and national governments are chipping in funds to support their local VC market. Two of the most recent new initiatives come from Virginia and the government of New Zealand.

 

GAP BioLife Fund

Virginia's Center for Innovative Technology (CIT) has created a new fund to support early-stage life science businesses, which will be partially funded by a grant from Johnson & Johnson. The grant provides $250,000 to the BioLife Fund, which will be matched by CIT. CIT's new fund will focus its investments on seed stage companies commercializing life science technologies developed in Virginia's universities and federal laboratories.

 

The fund is an outgrowth of the state's Growth Acceleration Program, which has invested in 17 companies during its three-year existence. CIT found that about one-third of companies seeking assistance from the original program were biotech firms, which often faced a difficult time securing capital. Many venture firms are wary of investing in the life sciences because of the longer timeline to generate a return on their investment, according to a Washington Post article on the new fund. In addition to state equity investment, CIT will offer biotech entrepreneurs business guidance and the possibility of future investment by Johnson & Johnson.

 

Read the press release at: http://www.cit.org/pdfs/press_release/07-03-15-CIT_launches_life_sci_GAP_fund.pdf

 

New Zealand Innovation Fund

The New Zealand Venture Investment Fund (NZVIF), a government fund focusing on early-stage venture investments, has committed $14.45 million to Pioneer Capital Partners' New Zealand Innovation Fund. The private fund will invest between $80 million and $100 million over the next five years in export-focused information technology and manufacture and design companies, according to the New Zealand Herald. Late, in 2006, the New Zealand government dedicated $70 million in additional funding to the NZVIF to invest in early-stage companies through domestic venture capital firms. The Innovation Fund is the sixth such fund established through the country's Venture Capital Program and will be soliciting additional proposals later this year. The government hopes that by investing in venture capital firms with international connections, the program will help the country capitalize on its high-tech innovations by quickly moving into global markets.

 

Read the press release at: http://www.nzvif.com/documents/Press%20Release%20-%20Pioneer%20-%2021%20March%2007.pdf