SSTI Digest

No matter which source one uses, venture capital investments continued their decline during the second quarter of 2001. The Moneytree™ survey, released this week by PricewaterhouseCoopers and Venture One, Inc., found a 21 percent decline from the previous quarter. Second quarter investments fell to $8.2 billion from $10.4 billion in the first three months of the year. Only 669 companies received funding, down 11 percent from the 752 firms funded during the first quarter.



While the decline in venture capital funding has captured all the headlines, PricewaterhouseCoopers points out the most recent Moneytree™ survey revealed outside participation from non-traditional investors, such as corporations, angels and other private equity entities, is at its lowest level in three years. Venture capitalists provided 90 percent of the equity investment in venture-backed companies during the second quarter. For comparison, during the first quarter of 2000, venture capital only represented 76 percent of equity investments in venture-based companies.



PricewaterhouseCoopers elaborates, "corporations are investing less than one-tenth the amount they contributed last year, with investment declining from $3.8 billion in the first half of 2000 to $353 million in first half of 2001. Likewise, private placements of equity in the first half of 2001 are at one-third of last year's levels."



The Moneytree™ survey for the second quarter found deals for early, seed capital funding continued their plummet, comprising only 15 percent of venture investments. Mid-round funding also declined, while later-stage, more mature companies actually saw venture capital deals increase eight percent over the previous quarter.



SSTI has prepared the accompanying table presenting the Moneytree™ survey findings by state. For the first time, average deal size for each state is included in the table to highlight the idea that the total amount of funding secured may not be the best indicator of the amount of venture activity occurring in a state or region.



The Growthink Reports

SSTI also has become aware recently of another detailed report examining quarterly venture capital activity in a format that may be useful to state and local tech-based economic development groups. Total U.S. Private Equity Funding Report: Organized by Market Sector and Geography, prepared by Growthink, Inc., analyzes and profiles 921 companies funded in the second quarter of 2001 and the top investors that backed those deals. Growthink surveyed 2000 venture capitalists, angel groups and corporate investors to find deals totaling $10.8 billion for the second quarter. The California-based consulting group also interviewed more than 1,000 companies to verify information collected.



Detailed information for each company and each source of funding is provided in four market sector reports or individual reports for seven geographic regions: Bay Area, New England, the Central United States, Southeast, Northeast, Southern California and the Pacific Northwest. The geographic reports further define equity activity by state and/or metropolitan region.



More information about Growthink, the Total U.S. Private Equity Funding Report, and the individual market sector and geographic reports can be obtained at http://www.growthink.com

What are you doing to protect your state or local economy from technological advances that will completely overturn an industry 10, 20, 30 years from now? 



With the prospect of someday losing 27,000 high-paying tech jobs at 15 automotive engine and powertrain plants, Michigan has unveiled a plan to position the state as a leader when automotive applications of fuel cell technology make the internal combustion engine obsolete. 



Commissioned by the Michigan Economic Development Corporation and the Michigan Automotive Partnership, the strategic plan and market study call for the state and automotive industry to jointly: 

Last week, the U.S. Census Bureau released the Census 2000 Supplementary Survey Data (C2SS), compiled from 700,000 test households prior to the full census. C2SS provides a preliminary look at data similar to those that will be available next year from the Census 2000 long form. Several summary state tables are provided with the announcement that can be used by states as indicators of economic progress, including educational attainment, median household income, median value of owner-occupied housing, and percent of people below the poverty level. 



Using the 1991 and 2000 educational attainment data from the Census Bureau, SSTI has prepared the accompanying table revealing each state's relative rank for the percentage of its population over 25 years of age that had obtained at least a Bachelor's Degree in 1991and 2000. The table also presents rankings for the percentage change between the two figures for each state. 



For both 1991 and 2000, the District of Columbia had the highest percentage of its population attain a Bachelor's degree or more, with 34.4 and 41.1 percent respectively. Massachusetts moved ahead of Colorado during the period to claim second place in 2000 with 34.5 percent. 



Indiana showed the most improvement during the decade with the percentage of college graduates in the state increasing by 35.4 percent from 1991 to 2000. The Hoosier state's overall ranking for 2000 was 45th, up from 48th in 1991. Delaware, second in overall change with 32.6 percent, jumped 14 places in the state rankings from 33rd in 1991 to 19th in 2000. 



The Census Bureau also has released 44 of 52 state profiles from the 2000 Census, including the District of Columbia and Puerto Rico. The final eight web-based profiles are scheduled to be completed by the end of this month. 



The C2SS tables can be found at: http://www.census.gov/Press-Release/www/2001/C2SS/presskit7_31_01.html 

Is the current concentration of effort toward the identification and licensing of intellectual property (IP) the best method to stimulate innovation? In a period seeing increased pressures on public research universities to identify alternate sources of funding, IP opponents may find economic considerations obfuscating the innovation argument: 

The Federal Laboratory Consortium for Technology Transfer (FLC) is the nationwide network of federal laboratories that provides the forum to develop strategies and opportunities for linking the laboratory mission technologies and expertise with the marketplace. More than 700 major federal laboratories and centers and their parent departments and agencies are FLC members. 



The approach of the FLC is to use a coordinated program that meets the technology transfer support needs of FLC member laboratories, agencies, and their potential partners in the transfer process. While its mission is to promote and facilitate the rapid movement of federal laboratory research results and technologies into the mainstream of the U.S. economy, the FLC develops and tests transfer methods, addresses barriers to the process, provides training, highlights grass-roots transfer efforts, and emphasizes national initiatives where technology transfer has a role. For the public and private sector, the FLC brings laboratories together with potential users of government-developed technologies. This is in part accomplished by the FLC Laboratory Locator Network and regional and national meetings. 



FLC News... 

As the new FLC Chair, Ann Rydalch outlines her goals and objectives in the Summer 2001 edition of FLC Insider, the Consortium's quarterly newsletter. Ms. Rydalch offers the following: 

The general fiscal condition of state budgets is growing weaker, indicates a preliminary report released August 1 by the National Conference of State Legislatures (NCSL). State Budget & Tax Actions 2001 provides information on 46 states included in NCSL's annual survey. The remaining states – Massachusetts, New York, North Carolina, and Wisconsin – had budgets that were either not passed or awaiting the governor's approval. 



While the fiscal conditions of states were strong a year ago, they have since been replaced by anemic revenue growth and expanding budget gaps, NCSL reports. As many as 17 states had budget shortfalls during fiscal year (FY) 2001. Another 20 states took measures to reach balanced budgets for FY 2002 due to the slowing economy. States with budget surpluses, 22 in all, were able to make deposits to the rainy day fund or other reserves (12 states), offer greater funding for capital projects (eight states), reduce taxes (six states), and target funding for specific programs (six states). 



To eliminate budget shortfalls or enact balanced budgets, 37 states took such actions as: 

The toll a lackluster economy is taking on Wall Street, manufacturing orders, and tech firm profits are well-known facts at this point. Tightening state and local tax revenues are also apparent. For households, less cash usually translates to changes in vacation travel plans and fewer purchases of luxury items, like bigger cars, expensive jewelry and – Internet access? 



Recent netScore Internet Traffic reports by comScore Networks, Inc. and Diameter reveal a five-percent decline in U.S. Internet usage over the past two months. While U.S. Internet traffic originating from colleges and universities is expected to drop off each summer, increases in household and business Internet use have historically more than made up for the decline. But not this year. In fact, household usage dropped in both June and July. 



Internationally, Internet traffic also declined, from a total of 299.7 million unique visitors in May to 296.4 million users in July – the lowest level since March. U.S. users now represent only 42 percent of the total world web market. 



The impact of the decline in usage on future e-business growth may be significant, leading to more market consolidation and dot-com failures. netScore executives suggest that “to be successful, many on-line marketers must including response to the challenge of generating sales in a medium that is no longer showing explosive growth.” 



As travel and entertainment-oriented sites largely dominate web traffic (and porn sites are excluded from the data set), encouraging other uses such as e-commerce, distance learning and telecommuting becomes more challenging. 



A recent UPI article analyzing the netScore data finds how the web is used may be increasing the economic chasm between less educated and more educated Americans. More educated Americans tend to use the web for professional development, economic gain and as part of their careers. Less educated web surfers tend to seek amusement or entertainment first. 



From a policy perspective, the findings seem to suggest the strategies of many state and local economic development organizations to address the Digital Divide through increasing Internet access and broadband availability need to be reoriented away from household audiences to specific needs for the business and industrial sectors. 



Fortunately, work-related use of the Internet is the one group still growing, according to the netScore reports. The work segment of U.S. Internet usage accounted for more than 52 million unique visitors in July, nearly 42 percent of all U.S. Internet traffic. For comparison, the work figure was only 47 million visitors in May. 



Some public efforts have begun focusing on the business community. With more than 70 centers across the country, the Manufacturing Extension Partnership of the National Institute of Standards & Technology has developed an eBusiness initiative to assist manufacturers in understanding and capitalizing on the power of the Internet as a business tool. See http://www.mep.nist.gov/index2.html for more information. 



Public programs that help targeted populations to gain a better understanding of ways to use the Internet to improve their economic and professional position include the U.S. Department of Education’s network of Community Technology Centers. See http://www.ed.gov/offices/OVAE/CTC/ 

Ohio businesses experienced a 15 percent increase in overall Internet and website usage between 1999 and 2000, according to the 2001 report released by ECom-Ohio — a public-private collaborative project to increase Ohio's readiness for global electronic commerce. 



In Assessing Ohio's Readiness for Global Electronic Commerce, Ohio is said to have extensive connectivity infrastructure. Between May 2000 and June 2001, Ohio's network connectivity increased by more than 150 percent. Ohio's four "cybercities"– Cincinnati, Cleveland, Columbus, and Dayton – place it among the best connected states in the U.S., the report holds. Overall, Ohio cities saw the total bandwidth available increase by more than 400 gigabits per second since May of 2000. At least 20 cities witnessed more than 100 percent growth in capacity, with 12 new cities said to have network connectivity capacity of 45 megabits per second or more. 



On a per capita basis, the report positions Cincinnati as the nation's leader in broadband availability with 85 percent of the city's population having access to broadband services. Seventy-nine percent of all Ohioans live in areas where they can obtain broadband services. While increasing 25 percent over six months, broadband services continue to be found primarily in urban areas. By 2005, Ohio plans to have 90 percent of its population equipped with broadband access. 



Additional highlights in the ECom-Ohio report: 

The National Science Foundation has published Federal Funds for Research and Development: Detailed Historical Tables: Fiscal Years 1951-2001. The five-volume report includes seven tables (55-61) that present the data by state for the period 1970-1999. Federal R&D obligations are characterized by industrial, university, nonprofit, FFRDC and intramural performers. Only available online, the report can be downloaded at http://www.nsf.gov/sbe/srs/nsf01334/pdfstart.htm 

The latest monthly update from http://www.econdata.net, an excellent portal for regional economic development related data on the web, included the following table prepared by the National Institutes of Health (NIH). The table presents the top 100 cities based on the total value of NIH research and development grants, contracts and training awards made in FY 2000. The funding may have been provided to a number of different organizations, companies, academic institutions, government agencies, or individuals located within the cities. 



Boston led the list with $1,078,198,949. New York City was a distant second at $865,191,623. Number 100, with more than $21 million in NIH research funding was Athens, Georgia. Cities in approximately 40 states made the list. The complete table is available at: http://silk.nih.gov/public/cbz2zoz.@www.cities.top100 

On July 16, both houses of Wisconsin’s state Legislature passed a state budget including numerous incentives for technological development. The budget covers state spending for a two-year period that began July 1. Gov. Scott McCallum has until August 30 to approve the budget; several of the tech-related items were in the Governor's first state of the state and executive budget addresses. See the February 23, 2001 issue of the SSTI Weekly Digest for a related story: http://www.ssti.org/Digest/2001/022301.htm

Despite many indications that show strong potential for growth, Southern California's bioscience industry still faces challenges, according to a new report from the Los Angeles Regional Technology Alliance (larta). Released July 19, Heart of Gold: The Bioscience Industry in Southern California highlights the strengths of the region's industry and honestly assesses the ways that the industry can overcome its weaknesses. The report was created to present a full 

and objective overview of the industry through analysis of data from numerous sources, interviews with leaders of the biosciences industry, and insights from bioscience publications.