VentureCapital_SM

We’re Venturing Out…

August 07, 2013 | Print Print

Its history and model are as old as capitalism.

It drives economic activity, creates jobs, and fuels innovation.

It has turned teenagers, stay-at-home moms, and retirees into CEOs and millionaires.

It is venture capital.

Since the dawn of the free market, investors have sought innovative ideas and have used their capital to help fund new and exciting business concepts. Venture capital has spawned whole industries – from the industrial revolution at the dawn of the 20th century to the Internet boom of the 1990’s and early 2000’s – venture capital has aided the entrepreneurial spirit and been a critical factor in the forward progress and economic expansion of the middle class. Venture capital funding leads to high-wage jobs and economic prosperity for companies, individuals, communities, states, and the nation at large.

Estimates from the National Venture Capital Association indicate that venture capital-backed companies comprise more than 10 percent of the labor force in the United States and generate revenue equal to over 20 percent of Gross Domestic Product. Venture capital-backed companies are also more tolerant to economic contractions. While the recession of 2008-2009 caused a significant contraction in the U.S. economy and venture capital-backed companies certainly felt that, they did so at a less substantial rate when compared to non venture capital-backed companies (examining employment and revenue figures). A recent impact report on the industry finds that on average, each dollar invested in venture capital yields over six dollars in revenue generation. In addition, the 500 largest public companies with venture roots increased their collective market capitalization by approximately $700 billion, rising from $2.1 trillion in 2008 to $2.8 trillion in 2010.

 

So How Does the Sunshine State Stack Up
When Measuring Venture Capital Activity?

The National Venture Capital Association and Price Waterhouse/Coopers jointly produce a quarterly report on venture capital activity nationwide, and by state. In 2012, Florida-based companies received just shy of $200 million in venture capital funding. However, in the second quarter of 2013 alone, Florida companies nearly reached the 2012 total, with over $155 million for the quarter. This is the highest single-quarter total for Florida in six years. In addition, the average “deal-size” of each venture capital project is the sixth highest in the U.S. at just over $11 million. This ranking includes two states, Iowa and South Dakota, each of which only had one extremely large deal for the entire quarter. That’s the good news.

When looking at the total share of venture capital funding that Florida companies take in, however, a significant challenge emerges. Of the more than $26 billion in venture capital funding invested in 2012, Florida’s $200 million represents just 0.74 percent of the national total – ranking Florida 15th in the U.S., behind states like Colorado, Utah, Pennsylvania, and New Jersey. The top five states in venture capital funding – California, New York, Massachusetts, Texas, and Washington – comprise over 78 percent of all U.S. venture capital. California-based companies, with over $14 billion in venture capital funding, receive more venture capital in two months than Florida-based companies do throughout the entire year.

The exhibits below provide details on the past 10 years of venture capital funding for Florida, along with the state share of venture capital funding for the U.S. in 2012. As Exhibit A illustrates, 2012 represented the lowest year for venture capital funding in Florida in the past 10 years.

 

Exhibit A: Venture Capital Funding to Florida-Based Companies, 2002-2012
VentureCapital_ExA

Source: PWC/Moneytree, Q2 2013 Venture Capital Report

 

Exhibit B: Venture Capital Funding by State, 2012
VentureCapital_ExB

Source: PWC/Moneytree, Q2 2013 Venture Capital Report

 

The Florida Research Consortium (one of the state’s major venture capital trade associations,) sees the opportunity in these figures. From the FRC’s most recent annual report:

The innovators of tomorrow are in Florida’s classrooms today. Given the right amount of encouragement and the necessary financial backing, one of them might one day find a cure for Parkinson’s disease; another could invent the device that allows paraplegics to walk; still another could discover the fuel that would forever end our nation’s dependence on foreign oil.

Economic development stakeholders in Florida largely agree that prosperity in the 21st century will be based on technology, knowledge, and innovation. In order to compete in today’s global economy Florida must commit to growing its innovation economy, and research plays an integral role. The innovations that begin in the laboratory with a simple “what if…?” spawn new products, new companies, high-value jobs, and tax revenues – in short, benefits for all Floridians.

Recent results from the Florida Chamber’s Quarterly Small Business Index Survey highlight this challenge. In the 2013 second quarter survey, “access to capital” was the most frequently cited challenge to small business expansion. In the survey, 36 percent of respondents said they were not able to obtain financing in the past six months, and 40 percent of small business owners said they expected financing to be more difficult to obtain in the short-term. Both figures are at least 10 percent higher than the prior quarter’s survey results.

The need for a greater emphasis on venture capital in Florida is paramount. Florida’s Chief Financial Officer Jeff Atwater, recognizes the need that this environment presents.

“Businesses large and small continue to tell us about their challenges in accessing the right capital to expand their operations and scope. It’s why my office is partnering with the Florida Chamber Foundation to investigate this further, and to conduct an in-depth survey on capital needs for Florida’s business community,” CFO Atwater said. “We have to examine the obstacles and create tangible solutions that promote business growth and prosperity. That’s what the Florida Chamber does every day, and that’s why we are joining with them in this endeavor.”

This topic, along with many other critical issues facing the state, will be addressed In October, at the Florida Chamber Foundation’s annual Future of Florida Forum. Information on the Forum can be found here.

 

About the Florida Scorecard Stat:

The Florida Scorecard, located at www.TheFloridaScorecard.com, presents metrics across the Florida economy. Each week the Florida Chamber Foundation produces a Scorecard Stat that takes an in-depth look at one specific stat. If you would like additional information on the Weekly Stat or on the Florida Scorecard, please contact Sal Nuzzo with the Florida Chamber Foundation at 850.521.1283 or snuzzo@flfoundation.org.

1 comments
DaleG
DaleG

The Scorecard doesn't tell the true story about Venture Capital Investment in Florida corporations.  Example: 1.  Our share of US VC funding dropped from a high of 3.5% in 1996 to less than 1% last year. The NVCA and PWc MoneyTree report estimated 2012 VC investments at $26.5 billion.  Florida's VC investment per State GDP ranks 29th compared to other states.  The top ten states included Utah at #4 per state GDP with $300 million.  The top 3: Mass ($3B), Ca. ($14B), and Washington State ($900M)...... It is time to change the scorecard measurement and develop a strategy to turnaround our decline.  It is nice to have an index that "looks good."  It is another thing to develop a strategy to "be good."

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