Editor’s note: Venture Watch is a regular feature on Tuesdays.The idea that venture-backed companies universally tanked during the 2001-2003 economic downturn is just not so, says a new study conducted by Global Insight and released today by the National Venture Capital Association (NVCA).
Andrew Hodge, a Global Insight managing director, said “Contrary to the notion that venture-backed high tech companies collapsed during the economic downturn, they actually outperformed their non-venture-backed counterparts.”
The study, entitled “Venture Impact 2004: Venture Capital Benefits to the U.S. Economy,” commissioned by the NVCA was conducted by leading economic analysis and forecasting firm Global Insight, Inc (formerly known as DRI-WEFA). Global Insight constructed a database of more than 30,000 U.S. companies that received venture capital investment at some point between 1970 and 2003. From this database,
U.S. companies backed by venture capitalists created 10.1 million jobs and $1.8 trillion in revenue in 2003, gains of 6.5 percent and 11.6 percent respectively over 2002. Meanwhile, national employment fell 2.3 percent and company revenues rose only 6.5 percent, the study says.
The study also shows that the U.S. biotech industry is extremely strong, but NVCA officials said in a conference call Monday that more government support for innovation in areas such as stem cell research is necessary.
John Taylor, of NVCA, told Local Tech Wire that North Carolina venture-backed companies showed staying power.
During the conference call, he noted that that annual venture investments have settled back into a $4 to $5 billion annual total, with the $100 billion plus of 2000 a market aberration.
Taylor noted that VCs learned from their mistakes and are trying not to “employ more money than we can effectively put to work.” That means not throwing money at copycat ideas or raising huge funds that cant’ be effectively invested, NVCA officials said.
NC a player:
Venture capitalists invested $5.8 billion in 383 companies in North Carolina, which accounted for 1.7 percent of total U.S. venture capital investment from 1970-2003.
In North Carolina, each venture investment of about $34,000 created a job, the study says, and every dollar invested returned $4.68 to the economy.
North Carolina ranks 14th in cumulative venture capital investment from 1970 — 2003, ranks 16th in 2003 jobs at venture-backed companies headquartered in the state, and stands 16th in 2003 revenues at venture-backed companies headquartered in the state with $26.9 billion.
The study also noted that Georgia venture-backed companies created revenue and jobs worth more than the venture-money put in the firms.
Georgia ranked fifth in jobs generated by venture-backed companies with 551,439. Some $7.2 billion was invested in Georgia firms by venture firms.
Georgia-based firms ranked sixth in revenues ($91.5 billion).
More VC, more jobs
Global Insight was able to measure the number of jobs and revenues these companies contributed to the U.S. economy in the years 2000 and 2003 in states and industry sectors.
The study shows that VC-backed companies fared better in job creation and revenue growth than their U.S. private company peers in 10 separate industries. Even in sectors that suffered net job losses, such as computer hardware and semiconductors, venture-backed companies were less affected.
Not only did venture-supported companies grow faster than their national industry counterparts, but the sectors with higher concentrations of VC financing experienced higher employment growth. The best example is the computer software industry, where venture-backed firms employed 88 percent of all computer software workers. Also, venture-backed software companies saw their revenues grow by 31 percent, compared with an overall 5 percent growth rate for the industry as a whole.
From 1970 — 2003 venture capitalists invested $338.5 billion dollars into more than 21,600 U.S. companies.
Global Insight: www.globalinsight.com/