capital

The fox pattern on his tie playfully conveyed Josh Lerner knew exactly where he stood as he looked out over the standing-room-only ballroom that served as the henhouse for SSTI’s annual conference two weeks ago. The audience, comprised mostly of practitioners from state, local, nonprofit and university-based TBED organizations, played its role as hens well – some nervous, some angry, all in fidgety anticipation of what the Harvard Professor was likely to say.

The Chinese government announced last Friday the launch of 20 venture capital funds, designed to target investments in high-tech sectors within their national economy. As outlined by China's National Development and Reform Commission (NDRC), these sectors include the medical and pharmaceutical industries, information technology, energy conservation and environmental protection, and energy production.

While the U.S. venture capital (VC) industry struggles to recover from the last year’s sudden collapse in fundraising and investment, several regions are successfully rebuilding their venture environment. Venture investment remained far below 2008 levels in the second quarter of 2009, with venture centers such as Silicon Valley, Los Angeles, New York City and Texas falling farther from their lackluster numbers in the first quarter.

Companies backed by venture capital grew their revenue and employment numbers at a much higher rate than other businesses in recent years, according to a report from the National Venture Capital Association (NVCA). Between 2006 and 2008, revenue at U.S. venture-backed companies increased by 5.3 percent, while total U.S. business revenues grew by only 3.5 percent. Employment at venture-backed companies grew by 1.6 percent during that same period, compared to 0.2 percent in the overall U.S. private sector. Last year, venture-backed companies accounted for 11 percent of U.S.

The U.S. venture capital industry showed signs of growth during the second quarter of 2009, according to the most recent update from the National Venture Capital Association and PricewaterhouseCoopers Moneytree Report. While the total number of deals remained flat, total dollars invested increased by 15 percent over the first quarter of the year. Much of the growth is the result of increased investment in seed and early-stage companies, which grew 67 percent over the previous quarter in an encouraging sign for entrepreneurs.

Three metropolitan areas dominate the U.S. venture capital landscape: San Francisco, Boston and New York. These cities are home to about half of all U.S. venture firms and about half of all U.S. venture-backed companies. Though venture firms have sprung up around the country over the past 25 years, the three cities have maintained, and even expanded, their share of national firms and investment.

Gov. Jim Doyle signed the 2009-11 biennial budget last month, providing funding for university-based research and enhancing tax credits for angel and venture investors supporting high-tech R&D.

After near unanimous passing in both chambers of the state legislature, the "Tennessee Small Business Investment Company Credit Act" was sent this week to Gov. Phil Bredesen for his signature. The legislation, designed to create a pool of at least $84 million in capital, utilizes a competitive process to select several venture capital funds to make direct investments in small business headquartered in Tennessee.

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).

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.