Transcript Venture Capital and U.S. Trade Competitiveness

Venture Capital
and
U.S. Trade Competitiveness
How Does Innovation Translate
Into American Jobs?
April 4, 2005
Council on Foreign Relations
Karen G. Mills
[email protected]
How does innovation translate into
American jobs?
DISCOVERY
Basic
Research
BUSINESS FORMATION
JOB CREATION
Invention
Commercialization
Growth
Innovation
• Growth Capital
and Expertise
• Small Business
• Entrepreneurship
2
Each quarter the U.S. economy creates
over 7 million jobs
Millions
Private Sector Gross Job Gains and Losses
1993-2003
10
Job Gains
Job Losses
9
8
7
2003
2001
1999
1997
1995
1993
6
Source: Bureau of Labor Statistics, U.S. Department of Labor
3
New jobs come from business expansions
and from newly formed firms
Millions
Components of Private Sector Gross Job Gains and Job Losses
1994-2003
8
Expansions
Openings
Contractions
7
Closings
6
5
4
3
2
2002
2000
1998
1996
1994
1
Source: Bureau of Labor Statistics, U.S. Department of Labor
4
The United States is losing manufacturing jobs
Millions
Employment - Manufacturing Industry
(1994-2003)
Job Gains
1.2
Job Losses
1
0.8
0.6
0.4
0.2
2003
2000
1997
1994
0
Year
Source: U.S. Department of Labor, Bureau of Labor Statistics
5
Job losses and job creation are influenced
by different forces
Job Losses
• Business Closures
• Productivity
• Offshore transfers
Job Creation
• New business openings
• Business expansions
– Small business
– Venture backed businesses
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New firms and the expansion of small
businesses create most of the jobs
Percent of Total New Jobs Created by Firm Type
1991-2001
24%
61%
Small Firm
Expansion
Small Firm
Expansion
Total New Jobs
New/Small Firms
<20
Employees
20-500
Employees
18%
19%
New Firms
Source: Small Business Administration; MMP Analysis
7
Entrepreneurs launch over 500,000 new
firms annually
Numbers of New Employer Firms Launched
1990-2001 (Thousands)
620
600
580
560
540
520
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
500
Source: U.S. Department of Labor, Bureau of Labor Statistics
8
Successful Venture Capital backed
businesses have a large economic impact
• 1970-2003 Venture Capitalists invested:
-
$340 billion invested
-
21,600 companies
• VC backed companies represent 9% of total U.S. jobs
and revenues
-
10.1 million jobs
-
1.8 trillion in revenues
9
Growth capital transforms innovation into
commercial enterprises and jobs
DISCOVERY
Basic
Research
BUSINESS FORMATION
JOB CREATION
Invention
Commercialization
Growth
Innovation
•
R&D Funding
•
Private Equity
•
Public Equity
•
University
Support
•
Bank Debt
•
Public Debt
•
Personal Savings
•
•
Corporate Profits
Company
Profits
Reinvested
•
Government
10
Over $250 billion is currently in the hands
of U.S. Venture funds
Capital Commitments to
U.S. Venture Funds ($ Billions)
120
100
80
60
40
20
2000
1995
1990
1985
1980
0
300
Capital Under Management
U.S. Venture Funds ($ Billions)
250
200
150
100
50
Source: NVCA Yearbook
2000
1995
1990
1985
1980
0
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Venture Capital backed companies grow faster
and create more jobs
Venture Backed Growth
2000-2003 Percentage Change
Sales Growth
Job Growth
12%
5 pp
7%
7%
9 pp
Venture
Backed
Total U.S.
Venture
Backed
-2%
Total U.S.
Source: National Venture Capital Association; Global Insights study
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This growth occurred in a number of
important industries
Employment Growth at Venture Capital Backed Companies vs.
Total by Industry Sector (2000-2003)
Semiconductors
-10%
-26%
Computer Hardware
and Services
VC Employment Growth
-1%
-14%
Industrial/Energy
1%
-9%
Business/Financial
Total Employment Growth
4%
-1%
Communications
5%
-18%
10%
9%
Healthcare Services
Retailing and Media
12%
-1%
Healthcare Products
16%
-2%
Computer Software
17%
-8%
23%
Biotechnology
5%
-30%
-15%
0%
Source: National Venture Capital Association; Global Insights study
15%
30%
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Venture capital funding spurs innovation more
powerfully than R&D
VC Spending as a percent of R&D
(1983-1992)
3%
Percent of Industrial Innovation*
accounted for by VC Backed Firms
(1983-1992)
8%
Percent accounted for in 1999
14%
* Innovation is measured by patent production
Source: Samuel Kortum and Josh Lerner, RAND Journal of Economics, Winter 2000
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The Small Business Innovation Research (SBIR)
Program had similar results
Change in Sales
($ Millions)
Comparable
Firms
SBIR
Awardees
$1.1
$4.0
Change in Employment
(# of employees)
Comparable
Firms
5.8
SBIR
Awardees
26.2
Note: The SBIR program provided $7 billion to small high
technology firms between 1983 and 1997
Source: J. Lerner, Harvard University and National Bureau of Economic Research
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Venture intensive industries had higher
wage growth
Wage Growth
2000-2003
Venture Intensive Industries
Healthcare
Products
Computer
Software
SemiConductors
Non-Venture Intensive Industries
Retail and Media
11%
9%
14%
Industrial/Energy
11%
16%
Biotechnology
18%
Communications
18%
Healthcare
Services
13%
Business/Financial
13%
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Private equity now funds the growth of private
companies at all sizes and stages
Average Investment
$0-3 mil
Start
up/Seed
$3-10 mil
Early
Stage
$10-50 mil
Later
Stage
$50-100 mil
Growth
Capital
$100-500 mil
$500+ mil
Mid
Market
Buyout
Large
Buyout
Venture Capital
Buyout/Mezzanine
17
Last year $57 billion was invested in
Private Equity
250
Capital Commitments
To Private Equity Funds 1979-2003
200
Other Private Equity Capital
Buyouts and Mezzanine Capital
Venture Capital
150
100
50
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
0
Source: 2004 NVCA Year Book
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Buyouts and Mezzanine Capital is also being used
to grow businesses
Capital Commitments to Private Equity Funds
100%
Other Private Equity Capital
75%
Buyouts and Mezzanine Capital
50%
25%
Venture Capital
2003
1997
1991
1985
1979
0%
Year
Source: 2004 NVCA Year Book
19
Institutions not individuals provide
most of the funds
Private Equity Commitments By Limited Partner Type
250
Corporations
Endowments & Foundations
200
Individuals & Families
($ Billions)
Financial & Insurance
Pension Funds
150
100
50
0
1999
2000
2001
2002
2003
Year
Source: 2004 NVCA Year Book
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Conclusion: Venture Capital and U.S. Trade
Competitiveness
•
America’s spirit of entrepreneurship, entrepreneurial
capital and expertise are important competitive assets
•
Private equity is a major new source of growth capital
and expertise that did not exist in this fashion 20
years ago
•
This risk capital plays a disproportionately important
role in driving economic growth
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Karen Gordon Mills
Karen Gordon Mills was a Founder and Managing Director of Solera
Capital, a private equity fund based in New York City. She has been in
the industry since 1983 and is an expert in investing and growing
companies in traditional U.S. based industries such as food, textiles,
media and industrial components. Some of these companies and brands
include Telex Communications, Mrs. Fields Cookies, Bruce Hardwood
Floors and Annie’s Macaroni and Cheese. Her background also includes
consulting for McKinsey & Co. and product management at General
Foods.
Ms. Mills received her A.B. from Harvard University in Economics in
1975 and her MBA from Harvard Business School in 1977, where she
was a Baker Scholar. She currently serves on the Boards of the Scotts
Company and Arrow Electronics and is Vice-Chair of the Harvard
Overseers.
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