Venture pays Investments in Texas start-ups create jobs and revenue

BYLINE: VICTOR GODINEZ, Staff Writer vgodinez@dallasnews.com

Texas-based companies funded by venture capital investors have created more than 1 million jobs over a 35-year period and generated roughly $250 billion in revenue.

Those findings, reported in a study conducted by Global Insight and released today by the National Venture Capital Association, highlight the role that venture funding plays in the overall economy, experts said.

"This is money and investment that is laser-focused into creating jobs," said John Adler, a general partner with Silver Creek Ventures in Dallas. "When venture investors are successful in putting money into a company, by definition, we're creating jobs."

Waco economist Ray Perryman said that venture investors are an important part of the economic development engine in the state.

"Most economic development, we talk about the big plants that are announced, auto plants or chip plants, but a great deal of economic development comes from sort of growing your own," he said.

"To do that, you have to have a very good capital investment structure, and that starts with angel investors and then venture capital investors."

According to the venture association report, from 1970 through 2005, venture investors poured $22.9 billion into young and start-up companies around the state, the third-largest sum received by any state over that period.

That down payment resulted in the creation of 1.09 million jobs and cumulative revenue from those Texas-based firms of $274 billion.

Not all the jobs were based in Texas; the report also tallied jobs created in other states by Texas companies.

Nationally, venture investment over that time totaled $385 billion, resulting in just over 10 million jobs and cumulative revenue of $2.07 trillion.

In some ways, Texas is getting more bang for its venture investment buck than other big states.

For example, Texas-based companies created one new job for every $21,026 they received from venture investors.

Compare that performance with California, which received by far more venture money - $161.4 billion - over the period than any other state and created more jobs than any other state, 2.3 million.

But each new job in the state "cost" $70,630.

John Jaggers, a general partner with Sevin Rosen Funds in Dallas, said that although the cost comparison between the two states isn't that clear-cut, it does show that California can be a tough place to do business.

"It is expensive," he said. "The other state that suffers a little on that scale is Massachusetts."

"Texas is a really good spot to be."

Sevin Rosen has offices in Austin and Palo Alto, Calif., as well as Dallas.

When it comes to the types of companies that attract venture investors in Texas, technology and telecom firms top the list.

Almost 22 percent of the venture capital - about $4.9 billion - that flowed into companies in the state went to software firms from 1970 through 2005.

Next in line were telecommunications companies, garnering $3.8 billion, followed by networking companies ($3.3 billion), industrial and energy firms ($2.2 billion) and semiconductor companies ($1.3 billion).

Venture industry insiders noted that venture-backed companies tend to outperform companies that never received any venture money.

"If you look at these companies, they're just much more disciplined at the end of the day," Mark Heesen, president of the NVCA, said during a conference call to discuss the findings.

"Even after the venture capitalists get off the boards of these companies, they will consistently do better year after year."

According to the report, between 2003 and 2005, employment at venture-backed companies grew 4.1 percent, compared with 1.3 percent at all firms.

During the same time, revenue at venture-funded firms jumped 11.3 percent, while overall sales at all U.S. companies grew 8.5 percent.

Venture capital investors generally do extensive research on a company before investing, and the funding is often doled out only as specific milestones are met.

Of course, that doesn't guarantee success, and a lot of the money handed out during the dot-com era evaporated without a single job or penny of revenue to show.

But the strategic planning that a company has to do before garnering venture money does often set the tone for the firm even after it has graduated from start-up status.

"It's the culture that's created within these companies," John Taylor, director of research at the NVCA, said during the conference call. "A lot of these companies have this built in from the very beginning, and that's why they're more successful than the rest."

Mr. Jaggers at Sevin Rosen said that venture investors are well aware of the role they play in boosting the economy.

But their investors still come first, and the economic benefits flow from that focus.

"We don't say, 'Let's do this deal because it will create a lot of jobs,'" he said.

"We say, 'Let's do this deal because we'll make a lot of money and in the process create a lot of jobs.'"